An ISA for Junior?
The Government is planning to introduce a new tax-efficient savings account for children, to replace the soon to be abolished Child Trust Fund.
Already dubbed a ‘Junior ISA’, the tax-efficient account looks likely to have similar restrictions to a Child Trust Fund (CTF) account. This means a contribution limit of £1,200 a year and no access to the funds until the child reaches their 18th birthday.
The accounts are set to become available from October 2011.
Assuming the CTF rules are copied across to the Junior ISA, it would also mean the child could make their own investment decisions from age 16 and the funds could be automatically converted into a full ISA from age 18.
An alternative approach that the Government might consider is to simply remove the minimum ISA age (18 for investments, 16 for cash) and enable existing ISA providers to offer their products to younger customers.
This approach is unlikely, as it would result in an ISA contribution limit more than eight times the size and therefore more lost tax revenue for the Treasury.
It will be interesting to see if the Junior ISA contribution limit (expected at £1,200) keeps pace with the ISA contribution limit, which is set to increase from £10,200 to £10,680 in April 2011, in line with the RPI increase for the year to September 2010.
For the sake of simplicity, we would like to see the Junior ISA contribution limit set at a percentage of the main ISA contribution limit, with increases in line with RPI each year applied to both.
Photo courtesy of Alan Cleaver.