The government has recently announced full details of the new Junior ISA’s which will replace child trust funds (CTFs), but how much do you know about them. This is a simple and brief guide to help you understand.
What are Junior ISA’s?
The new Junior ISA’s have been introduced to replace the Child Trust Funds which were first introduced in 2005. Junior ISA’s are the new tax-free savings accounts for children under the age of 18, unfortunately you won’t be able to get one for your child if they already have a CTF. All payments have been stopped to CTF’s since January 2011 and the Junior ISA is funded by your own money.
Who is eligible?
Any child who is resident in the UK and who doesn’t have a Child Trust Fund (CTF)
How do they work?
The Junior ISA will act similar to existing ISA’s. They are a saving and investment wrapper which ensures that all growth and income is free from income and capital gains tax and you will be able to hold both a Cash Junior ISA and an Investment-stocks and shares Junior ISA as long as you don’t exceed the annual contribution.
When will they be available?
They will be available from 1st November 2011
How much can I contribute?
The annual contribution limit will be £3,600 until 5 April 2013 and then it will be updated annually in line with the Consumer Price Index. Anybody including family members or a company will be able to contribute to the account.
How will I access the funds?
Once the child reaches 16 years of age they can manage their Junior ISA but cannot make any withdrawals until they reach 18 years of age and then the plan turns into a full ISA and the adult limits will then apply, currently £5,340 for a Cash ISA and £10,680 for a stocks and shares Isa.
Will there be different types of Junior ISA?
Both cash and stocks and shares Junior ISA will be available. Children will be able to hold up to one cash and one stocks and shares Junior ISA at a time (two accounts in total).You’ll be able to save the full £3,600 in cash or investments like shares, unit trusts and investment trusts.
Can I transfer between a CTF and an ISA?
The Child trust funds will continue and you will be able carry on paying money into them. The annual contribution limit will increase to £3,600 from November 2011 in line with Junior ISA’s. It will not be possible to transfer CTFs into Junior ISA, or vice versa. The future of CTF’s will be reviewed by the government after the Junior ISA’s have commenced.
Who will be offering be offering Junior ISA’s?
It likely to be banks, building societies and insurance companies. One provider Family Investments has already announced that it will provide a Junior ISA account for children.
You should always take advice with any investment decisions and fully understand any associated risks before making that decision.