Junior isa – child isa – draft legislation announced

Following the scrapping of the Child Trust Fund (CTF) in January, the government has now published draft legislation of the proposed Junior ISA child tax free savings account which will replace it.

This follows parliamentary discussions on the ISA during the Budget on March 24th. The Government will be in the process of consulting on these proposals between now and May when final plans are announced.

CTF’s were axed in January as the government attempted to reduce spending. The CTF was costing the government £500 milion a year as each new born child was entitled to a £250 contribution when a CTF was opened.

The new child savings account ISA will have no government contribution but like the CTF all savings will be allowed to accumulate tax free. Whereas the CTF had a savings threshold of £1200 a year, the new product will see the cap lifted to £3000 a year. Like the CTF, any person or organisation will be allowed to contribute to the ISA and not just friends or family.

The new tax free junior ISA savings account, like an existing Adult ISA will offer a cash as well as a stocks and shares product. In the ISA, savings will not be taxed and in the Stocks and Shares ISA, returns will be predominantly tax free.

What will be contained in the new Junior ISA?

The £3000 threshold will operate across both the Cash ISA and Stocks and Shares ISA with the total only being permitted across both of the accounts combined; there will be no rules on how contributions are allowed to be allocated between different accounts.

Children will only be permitted to hold up to one Cash and one Stocks and Shares ISA at any one time, and it will be possible to transfer accounts between providers. It won’t be possible to transfer CTF’s into a Junior ISA and the two types of account will remain completely separate.

The investments that qualify for the government child ISA tax free savings account will be the same as those available currently for an Adult ISA.

Who will be eligible for the Junior ISA?

The Child ISA will only be available to children who were born from 1^st January 2011 and onwards or were born before 1^st September 2002. Children born between these dates are only eligible for the Child Trust Fund (CTF). Although existing CTF holders are not allowed to apply for a Junior ISA, the threshold of annual savings has been raised from £1200 to £3000 to bring it into line with the new ISA.

It is estimated that when the tax free Junior ISA account finally launches on the 1^st November around six million children under 18 years old will be eligible with approximately 800,000 then eligible every year that follows.

Who controls a Child ISA?

Any parent or guardian with responsibility for a qualifying child will be allowed to open a Child ISA on a child’s behalf. Those children over the age of 16 who qualify will be allowed to open a Junior ISA themselves.

The funds accumulating in a Junior ISA savings account are locked away until the child reaches 18 years of age. No withdrawals will be permitted before then unless there are extreme circumstances such as death or a terminal illness. Once a child reaches 18 years old their Isa will automatically become an Adult ISA.

Who will offer these ISA products?

A tax free child ISA will be available from Investment providers, Banks and Building Societies. What will set the Junior ISA aside will be the small amounts expected to be offered by providers to start up the product.

It is expected that minimum balances on the cash ISAs will be as little as £1 and minimum contributions on the stocks and shares ISA at around £10 a month. By adhering to this it helps implement the government ethos of making Junior ISAs available to all families at different income levels

Providers will be allowed to set their own terms and conditions on Junior ISAs, for example such things as charges, account opening procedures and payment methods.

New details are emerging of the new Child ISA

In recent weeks it has finally been confirmed that the new Child ISA, officially known as the Junior ISA will be launched on the 1st November this year. It will be open to children born in 2011 or born before 1st September 2002. Any child between these dates will be required to open an account in the former CTF (Child trust Fund).

For more information on the latest developments concerning the Junior ISA please visit a useful page on the well respected Money Saving Expert website.