Junior ISA or Child Trust Fund?

For parents looking to save for their children the introduction of the Junior ISA in November 2011 (essentially replacing the Child Trust Fund account) muddied the waters somewhat with many people still often confused as to what accounts they can contribute to on behalf of their child. Hopefully this article will explain the difference between the two and make your options clearer.

Child Trust Fund (CTF)

Firstly it is important to make it clear that it is no longer possible to open a new Child Trust Fund account (CTF), although it is possible to continue contributing to an existing CTF. The CTF was introduced on 6 April 2005 and was available for all children born on or after 1 September 2002 and before 1 January 2011 provided they were living in the UK and child benefit had been awarded for them, which means that to qualify for a CTF account child benefit must have been claimed.

it is no longer possible to open a new Child Trust Fund account, although it is possible to continue contributing to an existing CTF

Initially, a Government contribution of £250 was given in the form of a voucher for each eligible child. It was also possible for additional subscriptions to be made, for example by parents, initially of up to £1,200 each tax year. Both cash and stocks and shares CFT accounts were available.

Fast forward to 2010 and the Government announced the running down of contributions to CTF accounts and that there would be no further CTF contributions from 1 January 2011. Any child born after 2 January 2011 was no longer eligible for a CTF account, although subscriptions to existing accounts could continue.

It is important to note that children that were eligible for a CTF are not eligible for the Junior ISA (JISA). It is also important to note that HMRC will have opened an account for any eligible child if the voucher remained unused.

If you are unsure where your child’s CTF account is held there is an online form available to track the CTF account provider at https:// www.gov.uk/child-trust-funds/

The good news is that you can still contribute up to £4,000 to an existing CTF for tax year 2014/15 and CTF accounts can still be transferred to other providers. The Government is also intending to merge the CTF with the Junior ISA with effect from 6 April 2015 which should mean there will be more choice and flexibility for those who would like to transfer a CTF elsewhere.

Junior ISA (JISA)

Junior ISAs (JISAs) were made available from 1 November 2011. All children who are under 18 and live in the UK are eligible for a JISA providing they weren’t eligible for a Child Trust Fund account. There are two types of JISA:

A child can hold either or both types of JISA provided that the total subscriptions to JISAs do not exceed £4,000

• A cash Junior ISA (which pays interest tax-free); and
• A stocks and shares Junior ISA. As the name implies contributions are invested in unit trusts, shares, free of any tax on any capital growth or any additional tax on dividends

A child can hold either or both types of JISA provided that the total subscriptions to JISAs do not exceed £4,000 (2014/15 tax year) – exactly the same as for the CTF account.

It is also important to note that a child cannot hold more than one of each JISA type (for example it is not possible to hold two cash JISAs in the same tax year)

Summary

Whether your child holds a CTF or is eligible for a Junior ISA the important thing to remember is that the subscription limits and savings options are similar and these accounts therefore offer a good opportunity to save tax efficiently on behalf of a child, providing you are happy that your child will have access to the money at age 18.

There are, of course, other options for saving for your child outside of a CTF or Junior ISA if you have already met the subscription limits for this tax year or indeed if you would like a solution that gives more control over when the fund can be accessed later down the line. Please feel free to contact us if you would like any further advice or guidance.