Your IndustryFeb 23 2012

Ghosts of CTFs past

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ByGareth James

Junior Isas were launched on 1 November 2011 with the aim of providing parents with a simple way to save for their children’s future.

They have been perceived by many as a replacement for child trust funds.

While this is true in many respects, important differences exist between the products. Perhaps most importantly for children who remain eligible for CTFs, at the present time, the Junior Isa door remains closed for them.

Unless the government responds to lobbying for change, it will not be possible for a CTF eligible child to open a Junior Isa. In practical terms, this means that a Junior Isa cannot be opened for almost any child born between 1 September 2002 and 2 January 2011.

So what are the differences between CTFs and Junior Isas?

An obvious place to start is with the level of government assistance provided. At the point CTFs were closed to newborn children, each child was given a voucher at birth for either £250 or £500 depending on their family circumstances with the promise of a further voucher at the child’s seventh birthday. The position is simpler with Junior Isas but unfortunately a lot less generous on the subscription front. The government does not provide any monetary incentive although the incentive of tax-free capital growth and investment income remains.

While the government has said it will not be adding any money to a Junior Isa it has loosened the restraints on the amount of money which can be paid in for the child. The old CTF limit of £1200 a year has been replaced with a limit of £3600 a year for Junior Isas. This annual limit will also be increased each tax year in line with CPI. To counter accusations that the lower CTF limit would be unfair to some children, the government has also announced an increase to £3600 to match the Junior Isa position.

Looking at the available investment structures, the three types of CTF – savings, stakeholder and shares – have been consolidated into the same two options used for adult Isas – cash and stocks and shares. Investment restrictions have also been matched to those applying to adult Isas.

If we start with the opening of the Junior Isa, the first thing to note is that this can only be done by someone with parental responsibility for the child. This differs from Junior Sipps, which have been a popular option with grandparents for some time. While there is nothing stopping grandparents from paying money into a Junior Isa, they are not able to open the Junior Isa, this must be done by the parents or guardians.