The Coalition Government has now confirmed details of the long awaited savings plan analysts had been expecting since the withdrawal of Child Trust Funds (CTF) last year. The Junior ISA will be launched in November and will extend to under 18s the same tax benefits which parents (and all adults) already enjoy.
The Junior ISA will allow parents to open up a specific account in their child’s name, into which they, their family and friends can contribute a total of up to £3,600 a year. These contributions will then be invested in a chosen mixture of cash and/or stocks and shares and the benefits locked up until that child reaches 18. Anyone under 18 born before September 2002 or after January 2011 (ie: those who do not have a CTF) will be eligible for a Junior ISA (and for those with CTFs, the annual limits are expected to be brought in line).
The Junior ISA could provide a significant step up for children whose family and friends get together for their benefit. Final values will always be subject to the funds you choose and the environment, both of which can have an impact on how much – or little – the invesment returns. However, as an idea of what 18 years of saving might offer, assuming an average of 5% pa (net of charges), that £3,600 pa could leave the lucky beneficiaries with a contribution of over £100,000 towards their world trip, first house or hotly debated tuition fees.