Convert Child Trust Fund to Junior ISA

Published / Last Updated on 27/11/2014

Video explains the child trust fund v Junior ISA and when you can convert the CTF to a Junior ISA.

Transcript:

"Hello there, this video the subject is Child Trust Funds versus Junior ISAs.

The child trust fund a little bit of history for you. Under the previous Labour government they established a savings regime to try and encourage children to save and indeed parents and grandparents to save on behalf of children and in simplistic terms:

For children born after 1 September 2001 and then stopping, because child trust funds have stopped, for children born before 2 January 2012 the Child trust fund was available. So child trust funds available for children born between September 2001 and January, 2nd of January 2012. [And] the way it works was the Child trust fund was a tax exempt savings plan pretty much like an adult ISA where you, as parents, grandparents, there was an annual allowance that started at the maximum of £1,200 per annum that could be invested.

On top of that, the government of the day offered a bonus and incentive a credit, via a voucher of a free £250 from the government and if you are a low income family or receiving income support or something like that, then a child within that family received an additional £250. So a total starting balance of opening balance with vouchers of £500 for lower-income families.

That then moved on where at the seventh birthday a further £250 was gifted by government and for low-income families again £250. So total of £500 for low income families £250 for other working families who where not on benefits etc. So in simplistic terms to £250 right at the start, £250 or your seventh birthday or if you are a low-income family £500 at the start, £500 on seventh birthday, free money.

When the coalition came to power one of the first things they did, so this is the Conservative Liberal coalition, clearly we were in recession etc., cutbacks were made and they stopped the (child trust fund) with effect 2 January 2012 and what they replaced it with, later on in the year, was the junior ISA.

So very similar to an adult ISA where there was an annual allowance that you and parents etc. children and parents can save into a junior ISA either stocks and shares or cash ISA with an annual allowance and the savings to then grow tax-free, where the benefits became available at the age of 18. So, in simplistic terms, your child is not allowed to access their junior ISA account until they are aged 18. They can take over and start managing it from the age of 16 but they can't make any withdrawals from the savings account until they are 18 but with the junior ISA, no free government contributions anymore, no more that £250 at birth and at year seven or indeed for lower-income families the additional bonus of that extra £250 top up each time.

So junior ISAs. Now with effect from 1st of July 2014, alongside the main adult ISA having its yearly allowance increased to £15,000, the junior ISA also had its allowance increased to £4,000 per annum. [So] we've seem some increases in the amounts that we can save in junior ISAs.

Now the question is: a lot of people are thinking about well my child's got a child trust fund, my other child, who was born a few years later, has got junior ISA , what should I do? Now basically as part of the legislation earlier this year in 2014, they have made provision for now for the conversion of child trust funds to newer style junior ISAs. Now that cannot take effect from today, the conversion can only take place from April 2015. So as I'm filming this, it is November 2014, you can convert your child's child trust fund to a junior ISA with effect from April 2015.

And you may ask why would I? Why would I? Why wouldn't I? What I would highlight here is a lot of child trust funds tended to go cash based where they were bank and building society deposit type savings accounts where not many investors went for the stock market linked child trust fund, whereas, under the new rules the new ISA and the new junior ISA or the JISA, however you want to pronounce it. There is much more availability here to stay within the same ISA but to move between cash deposits and stock market-related funds as and when you want to. So, more flexibility there and as a result we've seen a lot more investment companies, a lot more providers come to market and offer junior ISA contracts. So what I would say is: do review your child trust fund, do consider whether or not you should be converting the child trust fund to a junior ISA. It may be that charges are lower, it may be that technology has moved on so that you can manage the new junior ISA online.

Certainly there's a greater degree of flexibility in terms of moving funds around and managing it online and switching between cash deposits and stock market linked funds and fixed interest funds etc. And all I would say this is take professional advice.

Get some professional advice. Your children's savings are important, it's their future, they do grow tax-free and if nothing else, even if you're thinking about saving for weddings or a car or helping your children with a house deposit or university or whatever it might be; first in your armoury should be a consideration for some form of junior ISA account.

So I'll leave it at that, do consider converting child trust funds to junior ISAs, clearly we'll have to weigh up risk versus charges and flexibility, whether it's good or bad to transfer but then likewise don't forget that you can't convert your junior ISA, sorry your child trust funds to junior ISAs until April 2015. Thanks very much for watching."



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