Transferring your Child Trust Fund to a Junior ISA
The following discusses Junior ISAs and what’s involved in transferring a CTF to a JISA. This will be of interest to you if you are sitting any of the CII R02, AF4, J10, J11 or J12 exams.
Two years ago we talked about the unfairness of not being able to transfer a Child Trust Fund to a Junior ISA. An industry campaign showed plenty of others felt the same, and eventually the Government agreed that on the 6th April this year, around 6 million investors could transfer their child’s CTF to a JISA – if they wanted to.
CTFs, you’ll recall, 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). As soon as JISAs became available, it was as if the providers of CTFs lost interest; returns on JISAs were much more attractive, they had more fund choice and often the charges were lower.
Junior ISAs work very much like ordinary ISAs in that virtually 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 would be taxed back on the parent if it was over £100. With a JISA, this parental income tax rule doesn’t apply. For a stocks and shares JISA and CTF there’s no CGT on gains and the investments grow virtually tax free (as with any equity investment dividends are paid after a deduction of 10%).
Will Parents 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 JISA will offer more choice and better returns whether that’s through better interest rates on a cash JISA or lower charges on the stocks and shares option. With interest rates so low at the moment, 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 JISA 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 JISA. You then have to hope that the JISA you have picked then allows transfers in – some don’t.
Some More Details about JISAs
The annual amount you can contribute is of course lower than a normal ISA – this tax year the limit is £4,080 – and you can’t of course touch the money until the child is 18. 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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Over to You…
What do you think of the Government’s change of heart? Do you know of anyone who will be making this switch?