Dentistry money: A learning curve

One of the first financial announcements made by the coalition government was the intention to scrap the Child Trust Fund (CTF).

This was greeted with disappointment by CTF providers and financial services commentators, who pointed out that prior to the introduction of CTFs, fewer than 1 in 5 parents were saving for their children, whereas by the time the announcement to scrap them was made, this had risen to more than 3 in 5 parents.

Thankfully, the government had at least a partial change of heart, with the introduction of Junior ISAs, which became available from 1 November 2011.

The main features of the Junior ISA are as follows:
• Maximum annual contribution of £3,600 – this limit will be indexed in line with CPI from 6 April 2013 onwards
• Available to all UK resident children under the age of 18, who do not already have a Child Trust Fund
• Income and capital gains within a Junior ISA will be tax free
• Similar to those available to adults, children will have access to both a Cash ISA and a Stocks & Shares ISA, and will be able to hold both at the same time
• At age 18, a Junior ISA will convert automatically into an adult ISA

As long as the annual limit is not exceeded, it will be possible for contributions to a Junior ISA to be made on behalf of a child by more than one third party. This means that a single Junior ISA could receive contributions from, for example, parents, grandparents and other family members, all at the same time.

Given that many Junior ISAs will be invested for the long term, as contributions are locked in until age 18, it is unlikely that cash will be the most suitable option for the vast majority of children.

It will, however, only be possible for a child to hold one Junior ISA at any one time, which is why it is exciting that highly regarded fund managers, Fidelity International, have launched their own Junior ISA, as this provides full access to over 1,200 funds available on their funds network platform.

Changes to existing Child Trust Funds
It has also been announced that existing Child Trust Funds, which previously had an annual contribution limit of £1,200, will see that limit increased to £3,600 per annum, to ensure that children with an existing CTF are not disadvantaged.

Anyone funding a CTF up to the new limit may want to consider whether it is still invested appropriately – what may have been suitable for a relatively small fund may no longer be suitable for a fund which could grow large quite quickly.

Child Trust Funds were available between September 2002 and 2 January 2011, so from 1 November we have the following eligibility rules for children:
• Children born before September 2002, but still under age 18, can have a Junior ISA
• Children born between September 2002 and 2 January 2011 will have a Child Trust Fund
• Children born after 2 January 2011 can have a Junior ISA

It is clear to most commentators that the above eligibility rules are unnecessarily complicated, and there is no real reason why CTFs should not simply be converted into Junior ISAs. It may well be that this will happen in the future, but for now we are stuck with the current rules.

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