In the 2013 Budget, the Government announced it would consult on allowing the transfer of savings from child trust fund accounts in to Junior Isas.
Most children living in the UK who were born between 1 September 2002 and 2 January 2011 hold a CTF. The latest statistics from HM Revenue and Customs show that around 6.14 million CTF accounts were opened by 5 April 2012, holding just under £5bn of funds.
Under current rules, it is not possible for a child who holds a CTF to also hold a Jisa. The Government has acknowledged that in the interest of fairness, children with CTFs should not be prohibited from holding a Jisa if this account would better suit their long-term interests. It is therefore consulting on whether it should be possible to transfer funds from CTFs in to Jisas, and if so, on what basis such transfers should be available. The Government does not propose to consider options that would allow a child to hold both types of account concurrently or to allow Jisas to be transferred to CTFs.
The consultation will take in to account the impact upon all CTF holders and any potential impact upon the viability of the wider CTF market. In particular, consideration of the availability of suitable CTF accounts for children whose parents are not in a position to make regular contributions to their child’s account.
If the Government decides to proceed with changes, it is looking at two potential options. The first is a voluntary transfer, whereby the registered contacts for the CTF account could choose to open a Jisa for a child and transfer funds from the CTF to a new Jisa account. A CTF provider will not be permitted to refuse to transfer funds but it will be for a Jisa provider to determine whether it wants to accept CTF transfers.
The funds held in a CTF account could only be transferred in their entirety, following which the CTF account must be closed. It will not be possible for only some of the funds held in a CTF to be transferred, or for a child to hold both a CTF and a Jisa.
Another approach being considered is the idea of merging the CTF in to the Jisa. While such an approach could be attractive due to the simplification that may arise from there being just one tax-advantaged savings product available for all children, it is felt likely that merger of accounts could carry prohibitive cost.
In addition, many CTF account holders may prefer not to see funds moved to a Jisa. Because of this, and following initial meetings with stakeholders, the Government’s favoured option at present is to allow voluntary transfers from CTFs to Jisas rather than merging all CTFs in to Jisas, albeit it has not ruled the option of a merger out.
One difference between the CTF and Jisa concerns the treatment of funds on account maturity. Funds held in a Jisa can be automatically rolled in to an adult Isa on maturity, outside the normal Isa subscription limits. This is not currently the case for CTFs. However, before the first accounts mature, the Government intends to legislate to provide that funds held in a CTF on maturity can remain tax advantaged after maturity and may also be rolled into an Isa outside the normal subscription limits.
The consultation closed on 6 August 2013 and the Government will publish a summary of responses document outlining how it intends to proceed, including next steps and timetable.
Paul Kennedy is head of tax and trust planning at FundsNetwork