Junior Isas, a new form of tax-free savings account for children, were confirmed for launch in the 2011 Budget, delivered yesterday by Chancellor of the Exchequer George Osborne.
Although not mentioned in the Chancellor’s Budget speech to the House of Commons, Junior Isas featured in the Budget document released by HM Treasury. According to the paper, all UK residents under 18 who do not already have a Child Trust Fund will be eligible to open a Junior Isa.
It is expected that the first Junior Isas will open in autumn 2011, but no further information on the accounts is available yet.
Draft regulations setting out the details of how Junior Isas will work will be published next week, alongside the introduction of the Finance Bill 2011.
How Isas work
It is expected that Junior Isas will work along similar lines to cash Isas, which are currently available to UK residents aged 16 or over.
Isas act as a ‘wrapper’ that protects your savings from tax. Ordinarily, most people would have to pay at least 20% of the interest earned on their savings to HM Treasury – but when you save in an Isa, you are allowed to keep every penny.
Cash Isa ‘season’ is now underway as people rush to make the most of their Isa allowance for the tax year 2010/11. This ends on 5 April – and if you haven’t saved the full £5,100 you’re permitted to put in a cash Isa this year by that date, you will lose whatever remains of your Isa allowance for this year.
You can find out more about how cash Isas work by reading our How to find the right cash Isa advice guide, and compare cash Isa deals by visiting the Best Rate cash Isas review.
The Budget 2011 document also revealed that annual Isa limits will now increase each year in line with the Consumer Prices Index (CPI) measure of inflation. The Isa limit for the coming tax year, 2011/12, will be £10,680 – £5,340 of which savers will be eligible to keep in a cash Isa.
Junior Isas for children in care
The government is also working with charities and others to identify how children in care can be supported through Junior ISAs, according to the Budget 2011 document.
This may involve putting money into the Junior Isas of children in care, but it is unclear whether this would be funded by taxpayers or through other sources.
Which? live coverage of the 2011 Budget
Did you miss Which? Money’s live coverage of George Osborne’s 2011 Budget? You can rewatch all our Budget commentary and analysis by replaying the Which? Budget 2011 Live Blog.