The birth of Junior ISAs
Moneymatters expert Stuart Smith explains the main feature of the Junior ISA, and recent changes to existing child trust finds.
One of the first financial announcements made by the coalition Government was the intention to scrap the Child Trust Fund (CTF).
This was greeted with disappointment by CTF providers and financial services commentators, who pointed out that prior to the introduction of CTFs fewer than one in five parents were saving for their children –by the time the announcement to scrap them was made, this had risen to more than three in five parents.
Thankfully the Government has now had at least a partial change of heart with the announcement of the introduction of Junior ISAs, which will be available from 1 November 2011.
The main features of the Junior ISA will be as follows:
- Maximum annual contribution of £3,600 – this limit will be indexed in line with CPI from 6 April 2013 onwards.
- Available to all UK resident children under the age of 18 who do not already have a Child Trust Fund.
- Income and capital gains within a Junior ISA will be tax free.
- Similar to those available to adults, children will have access to both a cash ISA and a stocks and shares ISA, and will be able to hold both at the same time.
- At age 18, a Junior ISA will convert automatically into an adult ISA.
Once set up by the legal guardian, it will be possible for contributions to a Junior ISA to be made on behalf of a child by more than one third party. This means that a single Junior ISA could receive contributions from, for example, parents, grandparents and other family members all at the same time.
Given that many Junior ISAs will be invested for the long term, with contributions locked in until the child is 18 years of age, it is unlikely that cash will be the most suitable option for the vast majority of children. That is why, in an exciting development, highly regarded fund manager Fidelity International recently announced that it will offer Junior ISAs and give them full access to over 1,200 funds available on its Fundsnetwork platform.
Changes to existing CTFs
It has also been announced that existing CTFs, which previously had an annual contribution limit of £1,200, will see that limit increased to £3,600 per annum to ensure that children with an existing CTF are not disadvantaged.
Anyone funding a CTF up to the new limit may want to consider whether it is still invested appropriately – what may have been suitable for a relatively small fund may no longer be suitable for a fund that could grow large quite quickly.
CTFs were available between September 2002 and 2 January 2011, so from 1 November we will have the following eligibility rules for children:
- Children born before September 2002, but still under the age of 18, can have a Junior ISA.
- Children born between September 2002 and 2 January 2011 will have a Child Trust Fund.
- Children born after 2 January 2011 can have a Junior ISA.
It is clear to most commentators that the above eligibility rules are unnecessarily complicated, and there is no real reason why CTFs should not simply be converted into Junior ISAs. It may well be that this will happen in the future, but for now we are stuck with the current rules.
Register your interest
To register your interest in receiving a Junior ISA pack as soon as they are launched, call Pulse Independent IFA* on 01255 672112, or send an email to email@example.com
*a trading name of RJ Hurst and Partners Ltd, authorised and regulated by the Financial Services Authority.
Please note that tax concessions are not guaranteed and may change at any time – their value will depend on your individual circumstances.