Child Trust Funds

A Child Trust Fund (CTF) was an initiative by the government that provided a £250 savings voucher for every child born after the 1st September 2002.

Junior ISAs

Opening a Junior ISA

Junior ISAs can be opened by anyone who has parental responsibility for an eligible child. One ISA can be opened per child. Management of the ISA passes to the child when they turn 16. However, funds remain inaccessible until the child turns 18, after which they can either withdraw the funds, or have their account roll over into an adult ISA.

Junior ISA rules

On the whole, Junior ISAs are quite similar to regular adult ISAs in terms of rules and regulations. Some of these rules include:

• The 2020/21 annual contribution limit for Junior ISAs is £9,000 per tax year. This can either be put solely into a Junior cash ISA or divided between a Junior stocks and shares ISA and a Junior cash ISA in whatever proportion you wish.
• Funds in the account will be owned by the child it is opened for and will be locked in until the child reaches 18.
• Junior ISAs operate on a similar principle to regular cash ISAs; only one Junior ISA can be held by each child at a time, and you can transfer a Junior ISA from one provider to another. This is one of the key differences between an adult ISA and a Junior ISA. You can also switch a Junior ISA from a cash ISA to a stocks and shares ISA, and vice versa, something which is not permitted under the current rules for adult ISAs.
• Unlike Child Trust Funds, Junior ISAs don’t include any contribution from the Government.

Advantages of Junior ISAs

• The money saved in a Junior ISA stays tax-free once the child reaches the age of 18.
• The money is locked away until the child turns 18 which could help prevent it being wasted on non-essentials.
• Contributions are very flexible – you can save as much or as little as you want (up to the current annual allowance of £9,000), as regularly or infrequently as you want.
• Anyone can put money into a Junior ISA on a child’s behalf – so friends and relatives can contribute if they wish to do so.
• Junior ISAs will now accept transfers from Child Trust Funds but you’ll need to check with the Junior ISA provider first

Limitations of Junior ISAs

• Once your child reaches 18, the money is theirs to spend or save as they wish – if you are concerned that they will waste it, it may be better to set up a savings account in your own name.
• For 2020/21 the Junior ISA limit is £9,000. If you want to save more for your child during the tax year, you may need to open further savings accounts to do so. Remember that only one Junior ISA is allowed per child, per tax year.
• A Junior ISA may not always provide any additional advantages over a regular savings account as most children have an annual income that falls below the annual income tax threshold. They can therefore earn tax-free interest on money set aside for them in any savings plan.