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.
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
The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.
Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.
The Shari’ah ruling given herein is based specifically on the scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.