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Government unveils junior Isa plan

The Government has confirmed plans to introduce a tax free savings account to replace Child Trust funds.

The junior Isa is set to have similar restriction to CTF’s but will not have the government contributions.

The Government says it will work closely with stakeholders to formulate the structure of the accounts, which are set to be available by the autumn of 2011.

Funds will be placed in an account which will remain locked until the child reaches adulthood. As with traditional Isas, annual contributions will be capped.

In May 2010, the Government announced it would reduce and then stop CTFs as part of plans to save £6.2bn in 2010-11. Before this parents received a minimum £250 voucher for newborns, which they had access to from the age of 18. A further payment was made at the age of seven.

These payments were reduced in August and entirely from January 2011. This will save the Government £320m this year and £500m in future years.

Treasury financial secretary Mark Hoban says: “I am committed to ensuring that all parents can save for their children’s future in a simple and straightforward account. The introduction of this new account means that we can still offer people a clear way of saving for their children, while saving the half billion pounds a year that we currently spend on Child Trust Funds”.

TISA head of member services Carol Knight says: “We fully support this announcement. Following the decision that children born after the end of this year will not qualify for a Child Trust Fund there has been a real need for a scheme that is attractive to the consumer, is simple, provides choice, flexibility and variety and that is built on a brand they can trust.

“There is an increasing awareness of the need to take personal responsibility for the future whether it be retirement, higher education or housing. Many parents even now are making financial sacrifices to help children through university or onto the housing ladder so this new savings scheme will play an essential role by providing a vehicle which the public feels comfortable with and will help families make provision for the future.”


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I can’t understand why you wouldn’t just change the CTF rules and leave everything else in place.

    What a waste of time and money.

  2. ..because CTFs were a labout invention and for some reason you can’t be seen to be condoning anything the other lot did.
    See also PEPs being replaced by ISAs (for political balance)

  3. Come on Tom, this Government we are dealing with here, Common sense does not even enter the equation

  4. I don’t think many providers will offer this new product especially not those affected by the abolition of CTF. It cost the providers thousands to create the CTF and so I am sure they will be wary about investing into this new scheme. Also with the restrictions on cost will there actually be any profit or are the government relying on the providers to do this for free!!

  5. This is a useful savings tool for parents to invest for a child’s future. It is a type of ‘bareTrust’ that will be simple and easy to manage and outside any potential liability for capital gains in the fute
    Don’t knock it you cynics!

  6. why do we need TF savings when 94% of the population do not use their CGT allowance (including Kids) PEPS used to be able to reclaim witholding tax on dividends but no longer can. So what is the point of investing in something that you cannot hold jointly, cannot put under trust and has restriction, other than for cash but the tax savings on 2/3% is minimal.

  7. Mr Hoban has to make it look (to the public) like he is doing something positive while he is overseeing the negatives that will come from the implementation of the RDR.

  8. This is similar to the Labour Government’s scrapping of PEPs – which were perfectly good products and which were by 1999 starting to become the savings product of choice for much of middle England – and replacing them with their own concept, ISAs. Apart from the introduction of the cash element, and the ludicrous insurance allowance, the only difference was that the ISA was a labour device to replace the “Conservative” PEP.

  9. An ISA is not tax free as you are unable to reclaim the dividend tax credit! A child has their own tax allowance in any case.

    Maybe Mark Hoban MP needs to requalify?

  10. Savings accounts for children are tax free anyway????!!!

  11. Given that the facility already exists for parents to save on behalf of their children by way of a designated Unit Trust/OIEC which, when the child attains the age of 18, can be rolled over into an ISA, what’s the point of a kids’ ISA?

    Really, Mr Hoban, your ignorance is startling.

  12. ‘Savings accounts for children are tax free anyway’ – No they aren’t; it’s simply that most children’s accounts don’t breach the child’s personal allowance. Perhaps you have a specific product in mind, but as a generalisation I think the comment could be misleading.

    “A child has their own tax allowance anyway” – this is true, but I wonder if someone with up to date tax knowledge could clarify something for me. It used to be that if the interest/gain on a child’s investment was over a limit (£100 a while ago) then the Revenue looked at the original source of funds. If it was from parents then the gain was taxed as the parents’ income rather than the childs even if the investment was in the child’s name. There was also a separate threshold amount for other relatives.

    Is this still the case? If so, then the CTF would, I presume, clearly allocate all money as the child’s no matter what.

  13. What a waste of time. Why didn’t the government just come out and say that they are no longer going to contribute to child trust funds rather than create a new product?
    I just visited which answered many of my questions but I still feel a little bemused as to why the government made this decision.

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