Transferring your Child Trust Fund to a Junior ISA
The following discusses Junior ISAs and what’s involved in transferring a Child Trust Fund (CTF) to a Junior ISA. This will be of interest to you if you are sitting any of the CII R02, AF4, J10 or J12 exams.
This article is correct as at 12 September 2023.
Just a quick reminder of the facts – CTFs were available to children born between September 2002 and January 2011 and were helped along by a £250 voucher provided by the Government (£500 for those on lower incomes). The tax position of Junior ISAs is the same as CTFs and work like ordinary ISAs in that all income and capital gains are tax free. Children don’t usually pay tax anyway so the main advantage really is for the parents making maximum use of the annual subscription – if this was held in an ordinary savings account, any interest from assets given by the parents would be taxed back on the parent if it was over £100. With a JISA and CTF, this parental income tax rule doesn’t apply.
As soon as Junior ISAs became available in 2011, it was as if the providers of CTFs lost interest; returns on Junior ISAs were much more attractive, they had more fund choice and often the charges were lower.
Originally it was not possible to transfer a CTF to a Junior ISA. This was deemed by many to be unfair and an industry campaign eventually resulted in the Government agreeing from 2015 investors could transfer their child’s CTF to a JISA – if they wanted to.
Why Make the Switch?
The question is whether parents will switch or not. The products do look very similar but the devil is in the detail, and a Junior ISA is likely to offer more choice and better returns whether that’s through better interest rates on a cash Junior ISA or lower charges on the stocks and shares option. With interest rates below the rate of inflation, parents should really consider the stocks and shares route – 18 years is a long time and returns should be significantly better over that timeframe.
A Painless Transfer
The transfer should be relatively painless – the same as transferring an ordinary ISA. A transfer form needs to be filled in and the Junior ISA provider will then contact the CTF provider, and they will arrange the transfer. This shouldn’t take any longer than 30 days – usually much less. It’s the parent who will usually have to make the transfer as the registered contact. The whole amount will have to be transferred as a child cannot have a CTF and a Junior ISA. You then have to hope that the Junior ISA you have picked then allows transfers in – some don’t.
Some More Details about JISAs and CTFs
The annual amount you can contribute for both Junior ISAs and CTFs is of course lower than a normal ISA – this tax year the limit is £9,000. The money cannot be accessed from either until the child is 18 when the investment then belongs to the child and this is where a lot of parents will hesitate – are those children going to spend that money on the same thing as their parents had hoped and wished for or will they have their own ideas? The money belongs to the child, which means they can do what they like with it. For this reason alone a lot of parents will decide that their own ISA allowance is more than enough to save for themselves and their children and in the meantime keep control.
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