Individual Savings Accounts and Child Trust Funds: amendments to regulations
Published 15 March 2023
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This publication is available at https://www.gov.uk/government/publications/individual-savings-accounts-and-child-trust-funds-regulation-changes/individual-savings-accounts-and-child-trust-funds-amendments-to-regulations
Who is likely to be affected
Savers with Individual Savings Accounts (ISAs), Junior ISAs (JISAs) or Child Trust Funds (CTFs).
Banks, building societies and other financial institutions who provide or manage these accounts or investments.
General description of the measure
From 6 April 2023 government will introduce a range of free-standing amendments to the ISA and CTF legislation to accommodate changes to other legislation, clarify the position in cases of doubt, provide additional safeguards for investors, and protect the integrity of the tax-free savings landscape.
Policy objective
The measure supports savers and ensures that children and families continue to have access to suitable tax-advantaged savings products that meet their needs.
Background to the measure
Detailed account rules for ISA, Junior ISA and CTF are set out in regulations. It is necessary, occasionally, to update these to reflect external developments, industry queries and changes to related legislation.
The implications of changes introduced by The Dormant Assets Act 2022, The Alternative Finance (Income Tax, Capital Gains Tax and Corporation Tax) Order 2022, The Financial Service Act 2021, and The Social Security (Terminal Illness) Act (Northern Ireland) 2022 require consequential changes to be made to the ISA, JISA and CTF legislation, which were anticipated by the financial service industry.
A technical consultation took place between 21 November and 11 December 2022, the result of which informed the amending regulations.
Detailed proposal
Operative date
The measure will have effect from 6 April 2023.
Current law
Account rules for ISA and Junior ISA are set out in the Individual Savings Account Regulations 1998 (SI 1998/1870) (ISA Regulations), which are made under powers in the Income Tax (Trading and Other Income) Act 2005 and the Taxation of Chargeable Gains Act 1992. Account rules for CTF are set out in the Child Trust Funds Regulations 2014 (SI 1450/2004) (CTF Regulations) which are made under the Child Trust Funds Act 2004.
These Regulations: specify the circumstances in which an institution is approved to offer accounts; the types of investments eligible to be held in an account; qualifying subscriptions for an account; and permit sums to be withdrawn from a Junior ISA or a CTF where the account holder is terminally ill.
These provisions are framed with reference to appropriate provisions in other legislation relating to financial regulation and child welfare
Proposed revisions
The ISA and CTF Regulations will be amended by statutory instrument to accommodate changes in Northern Ireland legislation regarding terminal illness as it relates to minors ensuring that such children continue to be able to withdraw their funds when needed.
The changes will also amend the ISA Regulations to accommodate the extension of the Dormant Assets Scheme to include stocks and shares ISAs, allowing reclaimed funds to be returned to an ISA; and enabling funds recognised by the Financial Conduct Authority under the Overseas Funds Regime to be eligible for an ISA. They will also provide that Alternative Finance arrangements qualify for an Innovative Finance ISA, allowing investors to access the peer-to-peer market without compromising their beliefs
The changes will extend, to article 36H arrangements (also known as Peer-to-Peer arrangements), the requirement that loans between a Director and his company are not qualifying investments for an Innovative Finance ISA and clarify that shares in an investment trust must be listed and subject to a public offer.
Finally, updates will also be made to the ISA and CTF Regulations to introduce additional investor protections where managers cease to act or qualify, or have their approval withdrawn. The CTF Regulations will also be amended to remove certain personal information from CTF annual statements.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| — | Nil | Nil | Nil | Nil | Nil |
The measure is not expected to have an Exchequer impact.
Economic impact
The measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
These measures are not expected to increase the costs of an ISA for any individual or the tax due, as they will not adversely affect existing investments investors or managers.
The changes to notice requirements will ensure the continuation of the tax advantaged status of accounts where account providers change or cease to act.
The change is likely to affect a small number of investors, such as Company Directors, who may have wished to take advantage of the identified lacuna re Directors’ Loans and Peer to Peer arrangements. Existing investors and accounts will not be affected.
Customer experience is expected to remain broadly the same as the measures will not significantly alter how businesses interact with their investors.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure relating to terminally ill children in Northern Ireland will ensure that such children continue to be able to withdraw their funds when needed. The changes to notice requirements will ensure the continued protection of CTFs and Junior ISAs where account providers change. The changes to the CTF annual statements will protect more than 5 million children from potential identity fraud.
The inclusion of alternative finance arrangements (predominantly sharia compliant products) in Innovative Finance ISAs will allow investors to access the peer-to-peer market without compromising their beliefs.
Impact on business including civil society organisations
The changes to the notice requirements are anticipated to have a negligible administrative impact on approximately 550 ISA and CTF managers.
The change to IF ISA will have a negligible impact on a small number of ISA managers, who will be unable to offer Directors’ Loans arrangements to new investors. Allowing sharia compliant peer to peer arrangements in an ISA may benefit a small number of ISA managers who wish to engage in this market.
One-off costs for ISA and CTF managers will include familiarisation with the change to ensure they are compliant. There are expected to be no continuing costs.
Customer experience is expected to remain broadly the same as the change does not alter how businesses interact with HMRC.
These measures are not expected to impact on civil society organisations.
Operational impact (£m) (HMRC or other)
The overall additional costs for HMRC in implementing these changes are anticipated to be negligible. These are restricted to updating the ISA and CTF Manager Guidance and confirming the changes with key stakeholders. No funding is required for this submission. This paragraph has been approved by Teresa Knowles, Finance Director for CS&TD.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer and provider groups.
Further advice
If you have any questions about this change, contact Helen Williams by Telephone: 03000 512336 or Email: savings.audit@hmrc.gov.uk
Declaration
Andrew Griffith, Economic Secretary at His Majesty’s Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.