- Junior ISAs (JISAs) are being introduced as a replacement of the Child Trust Fund (CTF).
- CTFs were introduced in 2002 but excluded some six million children who were born before that date, which was generally considered unfair
- The annual contribution was limited to £1200 which was considered rather low.
- The Government made an initial contribution to all CTFs of £250 plus a further contribution of £250 at age 7, which it was keen to stop.
What is a Junior ISA?
The Junior ISA is a tax-free savings account for children but unlike it’s predecessor, Child Trust Fund accounts, the government will not make any payments into the plan
Who is eligible for a Junior ISA?
Children living in the UK who do not have a Child Trust Fund account or ‘stocks and shares’ account.
How much can be invested in a Junior ISA?
There will be a total yearly limit of £3,600 for all payments into these accounts, this amount will be indexed to consumer price inflation from 2013.
Each child will be able to have one cash and one ‘stocks and shares’ Junior ISA (or investment JISA) at any one time. One thing to bear in mind is that only one provider can run all your investment JISAs, unlike with adult ISAs where you can use a different provider every tax year. The same restrictions apply to cash JISAs.
What can Junior ISAs invest in?
Within an investment JISA you can invest in the same way as under an adult Stocks and Shares ISA i.e. shares, funds or cash. Providers will launch investment JISAs and cash JISAs but at the official launch date (1st November 2011) there will be few products on offer (see below).
What are the ownership rules for a Junior ISA?
- The accounts will belong to the child but they are not able to get the money until they are 18
- The child can become responsible for the account when they are 16
- When the child reaches 18 the Junior ISA will become an ISA
What will happen to my child’s existing Child Trust Fund?
- CTFs will continue for existing holders, including those children born up to January 2011
- No further Government contributions will be made
- If a child already has a CTF then they cannot have a Junior ISA as well. However, the contribution level on CTFs will be brought in line with Junior ISAs
Who are offering Junior ISAs?
Well, potentially all banks and building societies could offer Junior ISAs but at present only Lloyds TSB, out of the big five banks, has announced that they will be launching a product. Investment management firms Fidelity and Cofunds plan on launching JISA products but these are not likely to be ready for 1st November 2011.
Is there a valid alternative to Junior ISAs?
You could use your own ISA allowance to invest for your child’s future in your own name, which will give more control over how and when your child gets their hands on the funds. Little Johnny might turn into a hell-raiser and you might not want him to get access to any money when he’s 18. Unfortunately if the money is held in a Junior ISA there’s nothing you can do to stop him once he’s an adult.
Don’t forget that while there are tax implications in opening a ordinary savings account with your own contributions, (interest of more than £100 a year will be taxed as if it’s your own income) if the account is funded by a grandparent or other generous relative then interest up to the child’s annual personal allowance (currently £7,475) is tax-free.