Junior ISAs or Junior Individual Savings Accounts are tax-free children savings accounts. The benefit of Junior ISAs is that the parent or guardian does not pay income tax or tax for capital gains if the value of account grows over years. For opening a Junior ISA account, the child must be a citizen of UK and under 18 years of age. The government offers flexibility for children who are UK citizens but live outside UK.
Two types of Junior ISAs are operating in the country. In Type 1, people invest cash money in the accounts. They do not pay income tax on these savings. In Type 2, people invest bonds and stocks instead of cash. The value of these bonds and stocks increases over time however, neither the parent nor guardian pays any capital growth tax on these investments.
The difference between Child Trust Fund and Junior ISAs
The government opened Child Trust Fund for kids born between September 01, 2002 and January 02, 2011. The government gave out £250 to parents with average to high income and £500 to parents with low income. The government gave this money in the form of vouchers. Parents deposited these vouchers in the children saving accounts. The account holders, friends, parents or guardians were allowed to add maximum £4,080 into their accounts. The government paid them interest on the money but the owners or parents did not pay any tax on their savings. The interest was allotted from child’s birthday in current year to the birthday in next year.
In 2011, government introduced Junior ISA, which replaced Child Trust Fund. Although Child Trust Fund is still operating but it is not allotted to kids born after January 02, 2012. The drawback of Child Trust Fund is that the parent, guardian or child cannot take out money before 18th birthday of child. After 18th birthday, the child gets a lump sum of the amount and is free to spend it.
Why You Should Switch Your Child to Junior ISAs?
The government has announced upon public request that CTF owners can now convert their CTF accounts into ISAs. The notice became effective from April 06, 2015. Junior ISAs have more benefits, lower taxes, and less competition. It is easier to open a Junior ISA account than opening a CTF account.
Before switching your child’s CTF account to JISA, it is important to remember that you cannot switch back to CTF from JISA.
If you have a cash CTF account then you should switch it to JISA because JISA offers more benefits than CTF.
If you have an investment CTF account then gather the rates from the account providers. Do not switch if the transfer rates are too high. However, if the transfer rates are suitable then the active investor may switch to JISA.
The process of transferring the CTF account to JISA is easy. The investor only needs to provide the details of their CTF account. The account provides deal with the hassles of process.