Long live Junior ISAs – RIP Child Trust Funds
2020 sees an old plan mature and its replacement given a boost.
Be prepared to feel just a little old: the first Child Trust Funds (CTFs) will mature on 1 September this year, when their owners reach the age of 18.
CTFs were first launched in 2005, when nearly every child born on or after 1 September 2002 became entitled to a government payment of up to £250 (£500 for those from lower income families). At the age of seven, a second state payment of £250/£500 was made until August 2010. Additional subscriptions from parents, family and friends were allowed, up to £1,200 a year initially. All government payments stopped on 3 January 2011, after which no new CTFs were created, but existing CTFs have continued to run their course towards their age 18 maturity date.
Earlier this year, regulations were introduced which will mean that when a CTF matures:
· its owner can draw its value; or
· the CTF’s value (or part of it) can be invested in an ISA; or
· if the CTF provider receives no response from the CTF owner, the proceeds will be transferred to a ‘protected account’ where it will continue to enjoy freedom from UK income tax and capital gains tax (CGT).
HMRC set up many CTFs under a default procedure because the initial £250/£500 government vouchers were not redeemed. These and other ‘lost’ CTFs can now be traced using a form on the HMRC website.
In November 2011, the Junior ISA (JISA) was launched as a CTF replacement, to which no government payments are made. JISAs had a slow start, but their popularity has grown over the years. They were given a boost in the March Budget, when the annual subscription limit – which also applies to CTFs – was more than doubled to £9,000 for 2020/21. All other ISA limits were unchanged.
If you are concerned about university costs for your children or grandchildren, JISAs (and their CTFs predecessors if already subscribed to and not yet at maturity) are worth considering as a tax-efficient way to build up the necessary funds, as some 18 year olds will discover in a few months’ time.
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