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60 second guide to Junior Isas

New tax-free children’s accounts in November 2011

Junior Isas

Junior Isas will launch on 1 November 2011

The government this week announced full details of the new Junior Isas which will replace child trust funds (CTFs).

We give you all the details of the new tax-free children’s savings accounts:

What are Junior Isas?

Junior Isas are the new tax-free savings accounts for children under the age of 18 which are designed to replace child trust funds. You won’t be able to get one for your child if they already have a CTF.

The new accounts will act similarly to cash Isas. They are saving and investment ‘wrappers’ which shield any growth in your children’s cash from both income- and capital gains tax.

When are they launching?

The launch date for Junior Isas is 1 November 2011. Since 1 January 2011, all government contributions to child trust funds have been stopped.

Babies born on or after that date are ineligible to open child trust funds, but will be able to open a Junior Isa.

How much will I be able to put in a Junior Isa?

The Junior Isa annual contribution limit will be £3,600. The new limit will apply until 5 April 2013 and will then be updated annually in line with the Consumer Price Index. Anybody (eg a family member) or organisation will be able to contribute to a child’s Junior Isa account.

The contribution limit will apply across all cash and stocks and shares Isas, with no statutory rules on how funds should be allocated across the two. There will be no government contributions to Junior Isas.

How will my child access their Junior Isa?

Any money placed into a Junior Isa will not be able to be accessed until the child turns 18 years old. At this point, the Junior Isa will become a full Isa and the adult limits, currently £5,340 for a cash Isa and £10,680 for a stocks and shares Isa, will apply.

Will there be different types of Junior Isa?

Both cash and stocks and shares Junior Isas will be available. Children will be able to hold up to one cash and one stocks and shares Junior Isa at a time (two accounts in total).

You’ll be able to save the full £3,600 in cash or investments like shares, unit trusts and investment trusts.

What’s happening to child trust funds and can I transfer between a CTF and an Isa?

Child trust funds will continue to exist for the time-being, with people able to pay money into them. The annual contribution limit will increase to £3,600 from November 2011 in line with Junior Isas.

It will not be possible to transfer CTFs into Junior Isas, or vice versa. We at Which? have written to the Treasury to ask them to reconsider this. We’re concerned that children may be missing out on the best deals if their money is stuck in CTFs.

The government has said that it will consider the future of CTFs once the Junior Isa has been launched, and may more closely align the two.

Which companies are going to be offering Junior Isas?

Most companies haven’t announced yet whether they’ll market the new Junior Isas, but it’s likely to be a mixture of banks, building societies and other providers. It’s still early days, but Family Investments has already announced that it will provide a Junior Isa account for children. The Family Investments Junior Isa will be an investment-based Isa with monthly premiums starting from £10. The company will also have an ethical Junior Isa option.

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