UK Junior ISAs to replace child trust fund savings

The new proposed UK Junior ISA is due to be discussed by the government in the March budget next week.

We know that the proposed UK Junior ISA is a replacement for Child Trust Fund Savings (CTF) which was shelved in January but what else do we know about the proposed offering at this stage?

Unlike the Child Trust Fund, we know for sure that there will be no state contributions in the new scheme.

Indeed the whole purpose for scrapping the CTF by the government was the estimated £500 million annual cost of the CTF including giving children a lump sum of between £250 and £ 500 pounds.

What are the proposed guidlines of the UK government junior ISA?

The new product will actually be called the Junior ISA and is expected to be an account where like the child trust fund savings will grow tax free for children. It is estimated that the new account will be ready by autumn of this year, according to the Treasury.

The Junior ISA is likely to come in two variations mirroring an adult ISA, namely a cash ISA and a stocks and shares ISA. Like the CTF, a Junior ISA can be opened for any child under the age of 18 where savings by friends and family into the child’s ISA come under its ownership and are locked in until the child turns 18.

As with an adult ISA, there is expected to be a cap on how much money can be saved tax free and as of yet this is to be decided. The current cash saving limit of an adult ISA is currently £5,100 which increases with inflation each year, whereas the recently scrapped CTF had a cash saving limit of £1200 a year.

Parents who still have a CTF can continue investing £1200 a year into it until the child turns 18. It is still unknown at this stage whether parents who hold a CTF for their child will also be able to contribute to a Junior ISA simultaneously.

Children born after January 2011 in the UK when the CTF was scrapped and before the Autumn proposed launch of the Junior ISA will be allowed to participate in the Junior ISA but backdated to the start of 2011.

Overall there is a lot of speculation regarding what will and what won’t be contained within the new Junior ISA. The only thing that can be said with a degree of certainty is that the government will certainly not be making any cash contributions.