Save Extra Cash for Your Junior Investors

Parents can now transfer old Child Trust Funds into Junior ISAs - and these transfers do not count as part of your annual tax-free allowance

Emma Wall 30 April, 2015 | 12:59PM
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Good news for the six and a half million children with savings trapped in Child Trust Funds (CTFs). From this month, parents and guardians can transfer funds saved in poor-performing CTFs into the Junior ISAs, offering them significantly more investment flexibility – and greater opportunities for gains.

This tax year you can deposit up to £4,080 in a Junior ISA

Child Trust Funds were launched in 2002 to encourage parents to think about the long-term finances of their newborns. The Government gifted each child born from 2002 to 2011 with £250 to open the account, but despite the seemingly generous offer, there was a backlash from parents who quickly realised the CTF was restricted to just 14 products, many of which failed to offer their beneficiary a real post-inflation rate of return.

Furthermore 80% of parents who were gifted the £250 then failed to top up this amount, or even cash in the cheque. This meant that HMRC invested the money into low-cost passive funds on behalf of the child, which have had varying degrees of investment success. Unless these accounts are claimed, these taxman initiated CTFs will create a legacy book expected to run until the last fund matures in 2029.

When Junior ISAs were launched by the coalition Government in 2011 while there was no start-up capital offered to parents, there were also no restrictions on how parents or guardians could invest money on behalf of their child.

Much like an adult ISA, holders of a Junior ISA can choose to deposit their annual allowance in wide selection of stocks, funds and ETFs, as well as a cash products provided by banks and building societies. The difference being that in a Junior ISA access to these funds are restricted until the holder reaches 18.

While anyone under the age of 18 could open a Junior ISA, the cash previously invested in CTFs was not eligible for transfer, prompting an e-petition launched by disgruntled parents in November 2011 stating that “children born between 2002 and 2011, are about to be subjected to a form of discrimination which affects their human rights.” The petition warned that the negative impact of poor returns in CTF investments would

Finally, in December 2013, Chancellor George Osborne heeded the calls for transfers to be enabled and from this tax year, which began on April 6, the six and a half million CTFs eligible to transfer into JISAs can do so. As well as your unlimited transfer allowance, in the 2015/16 tax year parents and guardians can deposit up to £4,080 in a Junior ISA which will be free from income tax and capital gains tax.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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