New Junior Cash ISA's to Replace Child Trust Funds

By: Nadeem_Walayat

The Coalition government has announced plans to replace the Child Trust Funds with Junior ISA's. CTF's proved an abysmal failure as usually only the state would make contributions into a limited range of funds available, all of which have lost money after inflation and therefore acted purely as a vehicle for financial institutions to earn commissions and therefore a proved a waste of over £6 billion of tax payers money.

However the new Junior ISA offers the possibility for especially higher rate tax paying parents to extend their annual tax free savings by at least £1,200 per year per child (possibly as high as £5,100) without being forced to buy funds that only benefit the financial institutions.

The key condition is that deposited funds could not be withdrawn until the child reached at least 16 years of age and probably 18 years.

As the interest earned is tax free, this should therefore not fall fowl of current rules that limit interest earned per parent per child to £100 per annum.

Once the child reaches 18 years of age, they will be sitting on a tax free savings pot that they could either utilise towards University education costs or continue to hold as a source of tax free income.

Availability of the new Junior ISA accounts is at least 9 months away and unlike CTF's will not receive any state contributions, thereby saving the tax payer £500 million a year on the current annual cost of CTF's contributions.

Further details will follow as to who will be eligible, as it will probably exclude existing CTF accounts holders, though probably there will be a mechanism for transferring a CTF to a Junior ISA, just as a decade ago TESSA's and PEPS were able to converted into ISA's.

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By Nadeem Walayat

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