New Junior ISAs in UK launch in November

Details of the new Junior ISAs being introduced in the UK on 01 November have been unveiled by the government and widely welcomed by the financial services industry.

The new Junior ISAs have been introduced following the end of Child Trust Fund (CTF) eligibility at the beginning of 2011 and are for all UK resident children under the age of 18 who do not have a CTF. Both cash and stocks and shares Junior ISAs will be available and any income or gains will be tax free.
 
Children will be able to hold up to one cash and one stocks and shares Junior ISA at a time, that is two accounts in total, and the government has raised the annual limit to £3,600 from an expected £3,000.

Accounts will be owned by the child and funds will be locked in until the child turns 18.  They will have the right to manage their accounts from age 16.  Junior ISA accounts will by default become adult ISAs on maturity.

Fidelity International is one of the first companies to announce it will be offering Junior ISAs from November 01. ‘Fidelity customers will  be able to invest their annual allowance in our wide range of funds and investment trusts, as well as access a wide choice of some 1,200 funds from the other 70 fund companies on our fund supermarket,’ said Rob Fisher, head of personal investments at Fidelity International.
 
‘With the increased focus on the individual to provide for themselves, rather than rely on the state or employer, the Junior ISA has the ability to teach an important lesson to young people early in their life. The earlier they start saving, the earlier they can benefit from the compounding of their assets and the long term performance of the stock market. It will also help focus adults to save and invest on behalf of their children for university, first home deposits in addition to encouraging the discipline of saving,’ he added.

Using the established ISA brand to create Junior ISAs will encourage take up, as many adults are repeat investors into ISAs and recognise the benefits of tax efficient investing, according to Catherine Penney, investment and tax specialist at Barclays Stockbrokers.
 
‘The stocks and shares Junior ISA offers access to the same wide range of investments available through adult ISAs to construct a diversified portfolio, offering the potential for good long term investment prospects, although of course the value of investments can fall as well as rise. With little expectation that interest rates will rise higher than inflation any time soon, access to investments offers the opportunity to offset the effects of inflation,’ she explained.

‘At a time when young people are facing rising fees to access university education or need to build significant savings to get started on the property ladder, Junior ISAs offer the opportunity for any relative or friend to contribute towards a nest egg available to the child at age 18. It is crucial that people make the most of their annual tax free ISA allowance, and appreciate that it really is use it or lose it as each tax year passes,’ she added.

As there aren't many tax breaks available, the existing cash and stocks and shares ISAs provide a valuable way to save while avoiding tax liabilities, according to Oliver Roylance-Smith, head of savings and investments at Fair Investment Company.

‘Junior ISAs provide a welcome extension of this tax benefit, specifically for a child's future. We urge the industry to create an attractive range of products to help encourage the widest possible number of people to save for their children,’ he said.