Junior ISAs were introduced to encourage parents to save money for their children and to provide an alternative to the Child Trust Funds (CTF) that were only available to children born after 31 August 2002 and before 3 January 2011. It is possible to transfer CTF funds to a Junior ISA.
Junior ISAs were made available in November 2011 after CTFs were phased out. However, unlike the CTF accounts, the government does not contribute any public funds. Investments are available in cash or stocks and shares and a child can have one or both types of Junior ISA.
The money in the account belongs to the account holder. The child can control their account from the age of 16, although any money saved cannot be withdrawn until they turn 18. Junior ISAs automatically turn into an adult ISA when the child turns 18.
Any income from CTFs or Junior ISAs is exempt from Income Tax and CGT on the child or the parent even where the invested funds came from the child’s parents. The current subscription limit for both CTFs and Junior ISAs is £4,368. It has been confirmed that the limit will increase to a generous £9,000 from 6 April 2020.
Draft regulations concerning the introduction of a new type of tax-free children’s savings account have been published. The new accounts will be known as Junior Individual Savings Accounts (Junior ISAs) and are expected to be available from 1 November 2011. Comments on the draft regulations can be made until the end of May. The Government intends to make the final Regulations in July 2011.
The new savings accounts have been introduced to encourage children to save money and will go some way in making up for the phasing out of the Child Trust Funds to save the Government some £500m per year. However, the new savings accounts will be run by private providers and the government will not contribute any public funds.
The new account will have the following key features:
- All returns will be tax free.
- Funds placed in the account will be owned by the child and would be locked in until the child reaches 18 years of age.
- Investments will be available in cash or stocks and shares.
- Annual contributions will be capped at £3,000 per year.
- Junior ISA accounts will by default become adult ISAs on maturity.
- All UK resident children who do not have a CTF will be eligible for Junior ISAs.