Advisers snub junior Isas as replacement for CTFs

7 October 2010 | By John Kenchington

Advisers have poured cold water over the Treasury’s plans to launch junior Isas for children as a replacement for child trust funds.

The Treasury is consulting with providers over possible new children’s savings accounts and will decide whether to launch the schemes based on industry response.

They would allow tax-free investment in cash or stocks and shares up to an annual limit and the funds would be owned by the child but would be locked in until the child reaches 18. There would be no Government contribution.

In May, the Government said that it would scrap child trust funds, ending the scheme for children born after January 2011.

Informed Choice managing director Martin Bamford says: “Children have their own tax allowances already, with the £100 rule meaning that interest generated by cash savings from their parents is classed as taxable income for the parent.

“I suspect that without the incentive of a Government contribution, this idea will not get very far in practice.”

Skerritt Consultants head of investments Andrew Merricks says: “Anything that places a lump sum in an 18-year-old’s hands needs to be considered carefully.”

Hargreaves Lansdown head of advice Danny Cox says: “A junior Isa has some attractions but is unlikely to gain significant support without a Government contribution as an additional stimulus.

“A further criticism of child trust funds was the automatic maturity at age 18. Some flexibility on the cash in date would be helpful.”

However, Philip J Milton Financial Services managing director Philip Milton says the scheme could gain some traction if the Government allowed existing child trust funds to be converted into the new junior Isas. He says: “I would be in favour of this. What is wrong with an Isa without the age limit?”

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