Is Zakat Due on Child Trust Funds?

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Question:

Is Zakat Due on Child Trust Funds?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The Answer:

Zakat is not due on children who are minor and prepubescent in the Hanafi school. However, according to the Shafi’i, Maliki and Hanbali schools, Zakat is obligatory on the wealth of minor children also. Thus, in the Hanafi school, the issue of Zakat on CTFs will only be questioned upon maturity and puberty of the child.

There are three types of Child Trust Funds:

1)     Stakeholder account

These accounts see your children’s savings put into stock market investments. Stakeholder rules mean that charges are capped at 1.5% a year, and they have to be invested in a wide mix of investment types. After the child’s 13th birthday, the investments are transferred to less risky portfolios.

2)     Shares account

These types of accounts allowed you to either pick an investment fund to put your children’s savings onto the stock market, or pick your own investments.

3)     Savings account

Such CTFs are not invested in shares, rather, they accrue interest.

In regards to the Stakeholder and shares Child Trust Funds, Zakat will be due on the underlying Zakatable assets in the fund. This can be gauged by looking at the asset composition in the fund. One will pay Zakat on the proportion of Zakatable assets in the fund.

In a savings Child Trust Fund, the entire amount minus the interest element is Zakatable. One hundred percent of the interest earnings must be relinquished in charity. At the same time, one should move to a Shariah compliant CTF.

Regarding the timing of Zakat on CTFs, the mature child can pay Zakat on it every year before having the ability to access the funds. It is also permissible to delay the payment of Zakat upon accessing the funds. If one chooses to wait until access, it will be obligatory to backdate and pay Zakat for the previous years after becoming mature until acquiring access.

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam al-Mahmudi,
www.darulfiqh.com

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