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Switching a Child Trust Fund to a Junior ISA

Before deciding whether to transfer a child trust fund to a Junior ISA, it’s important to know the difference between the two savings platforms. Both are ways of saving or investing long-term for a child’s future. At first glance, the two have many similarities, but before you ask yourself can you transfer a child trust fund to a Junior ISA, there are some differences you need to be aware of.

What is a child trust fund?

Child Trust Funds (CTFs) were first launched in 2005. They were made available for children born in the UK between the 1st of December 2002 and the 2nd of January 2011. The reason for the relatively short lifespan is that CTFs were replaced by Junior ISAs in November 2011 and can no longer be taken out.

A Child Trust Fund is a tax-free savings/investment account. When they were first set up, they were subject to an initial award of £250 from the UK government upon the birth of the child and a further £250 when the child turned six years of age.

Accounts could be set up by an adult with parental responsibility. This adult was known as the Registered Contact and was legally responsible for acting on behalf of the child to ensure that the account was correctly invested and operated. The account itself remains with the CTF provider.

Child Trust Funds were available in 3 options:

  • Cash CTFs – containing cash savings only
  • Stakeholder CTFs – holding savings in the form of stock market investments
  • Shares-based CTFs – where the registered contact can choose to pick an investment fund or put the savings into their choice of stocks and shares

All deposits within the £9,000 per annum limit and any gains made by the accounts are tax-free. Although you can no longer set up a new Child Trust Fund, you can continue to make contributions up to the £9,000 annual limit.

Does a CTF affect the benefits of the registered contact?

Registering a Child Trust Fund did not affect the benefits of the registered contact. Similarly, it does not affect the benefits of anyone else contributing to the CTF as the money is held in trust for the child.

A summary of the six Child Trust Fund need-to-knows

  • Up to £9,000 per annum can be saved tax-free
  • Any gains made by the accounts are also tax-free
  • You can change CTF providers
  • The young person can take control of the CTF on his or her 16th birthday
  • A child can withdraw funds from the CTF after his or her 18th birthday
  • A child is not permitted to have a CTF and a Junior ISA running concurrently

There are two significant reasons to transfer a Child Trust Fund to a Junior ISA (JISA).

  • A JISA is cheaper to set up and operate.
  • A JISA earns more interest.

If you do decide to change a Child Trust Fund to a Junior ISA, your next question will probably be, “how do I go about it? – so, that’s the next topic up for discussion.

How do I transfer a Child Trust Fund to a Junior ISA?

You’ll be pleased to know that when you transfer a Child Trust Fund to a Junior ISA, rather than the three different types of CTF that exist, JISAs only come in two forms – a Cash JISA or a Stocks and Shares JISA. So, from that point of view, knowing how to transfer a Child Trust Fund to a Junior ISA is a little easier. In actual fact, the whole transfer process is quite easy.

When you are considering should I transfer a Child Trust Fund to a Junior ISA, here are four points that could help you to make up your mind:

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  • Generally, they have lower fees
  • You can keep all your family’s accounts in one place
  • You have a wider choice of investment options
  • You can save money regularly from as little as £25

All of the points mentioned above are pro transferring a CTF to a JISA; however, on the negative side, you need to be aware that cancelling a CTF may involve a cancellation fee. Any cancellation fee can easily be outweighed by the benefits of such a transfer, but obviously, this is dependent on the stage at which the transfer takes place.

Where to start?

The first place to start with a Child Trust Funds transfer to a Junior ISA is to open a JISA. As mentioned above, you can choose from one of two types, not three. To help you make the best choice, it’s important to compare the various Junior ISA providers. There are several platforms around, like Moneyfarm. 

Once you’ve carried out your research into which is the best provider, all you need to then do is to tell them how much you wish to transfer from the CTF and, if you’re going to opt for the Stocks and Shares JISA, to tell the provider which risk level you fall into.

In addition, there is always an official transfer form that needs to be completed, and this will vary slightly from provider to provider. Completing it ensures that all of the tax benefits will be carried forward. You can see a sample of this type of form at the bottom of this page on the GOV.UK website.

Although a Child Trust Fund and Junior ISA are two different things, a child cannot have both. So, if you do decide to transfer a Child Trust Fund to a Junior ISA, you will have to shut down the CTF. 

Have you got a CTF you didn’t know about?

It is thought that somewhere around 1.8 million CTF’s have been lost. There are several reasons for this, including:

  • HMRC initiated a CTF because the parents failed to do so when they received the child’s £250 award from the government.
  • Families move home and sometimes lose touch with the CTF provider

If you think you have lost a CTF, you can get in touch with HMRC, who will carry out a search. If an account is tracked down, you will be able to re-contact the CTF provider and regain control of the account. Click here for more information.

Also, for children that have spent time in care, the Share Foundation can assist. They claim to administer approximately 16,000 CTF’s worth £1,884 on behalf of children who were in care.

Junior Cash or Junior Investment ISA?

You can transfer funds from a Cash CTF to a Stocks and Shares JISA if you wish. There is no doubt that, on average, the interest a Stocks and Shares Junior ISA makes outweighs the interest that Junior Cash ISAs make significantly. However, investing in stocks and shares always involves an element of risk, so it depends on how risk-averse you are.

If the child whose name the account is in is old enough, you might choose to discuss it with him or her. You should also bear in mind that from 16 years of age onward, the child is able to manage the account themselves, in which case they should have the final say. If needed, he or she can discuss the pros and cons of transfer of their Child Trust Fund to a Junior ISA investment account directly with the JISA provider.

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