Investing for Children - Child Trust Funds/Junior ISAs

The Government has recently increased the amount you can annually save into a Child Trust Fund and they have introduced Junior ISA's

Why it makes sense to invest for a child’s future.

You may be aware of the Government’s new initiative that has launched, the Junior Individual Savings Account (ISA), which allows you to take advantage of tax-efficient savings on behalf of your child or children.

I know that the recent economic uncertainty around the world may make it hard to decide whether to invest – and if so, where to invest. However, I believe that short term market conditions should not discourage you from investing for your child’s long term future. History shows that, more often than not, investing through tough times pays in the long-term: Investing steadily through both bad times and good is one of the best ways to protect yourself against inflation reducing the value of your savings. And the valuable tax advantages of the Junior ISA allowance make it even more worthwhile.

What is a Junior ISA?

The Junior ISA is a tax-efficient way to save and invest for a child’s future.

Like any other Individual Savings Account, you can invest in a Stocks and Shares Junior ISA, a Cash Junior ISA or a combination of the two. The key difference is that a Junior ISA is exclusively for under 18’s, who are resident in the UK. The account is held in the child’s name, but they can’t access the money until they turn 18. Once opened by you (the parent or guardian) you can continue, with other members of your family or friends, to invest up to £3,600 each tax year for each eligible child. Unfortunately if your child holds a Child Trust Fund, they are not currently eligible for a Junior ISA.

Why invest in a Junior ISA?

As children get older, they’re likely to face some major expenses: university fees, student loan repayments or perhaps they fancy a gap year abroad. Then there’s a car, a deposit on a home or even marriage. And when they’re trying to stand on their own two feet, you won’t want to see them weighed down with debt.

By starting to invest for them now, in a tax-efficient Junior ISA, those big bills could be a lot easier to handle. Especially as any investment returns are free from any individual liability to income tax and capital gains tax for both you and your child.

What has happened to Child Trust Funds

Child Trust Funds and Junior ISAs will remain separate types of accounts and it’s not possible to transfer CTFs into Junior ISAs or vice versa.

Existing Child Trust Funds will continue to run as normal. This means that:

• It will continue to benefit from tax efficient investment.
• Up to £3,600 a year overall can be contributed by family and friends. This limit runs from your child’s birthday to birthday. From April 2013, this amount will be updated each year in line with the Consumer Prices Index (CPI) and will continue to be aligned with the Junior ISA limit.
• The CTF will continue to run until your child’s 18th birthday.

Choosing the right investment approach for children is important and will depend on a number of factors including your timescale and appetite for risk .

Please do not hesitate to contact us to discuss how we can help.