Junior ISA limit increased
The Junior ISA (JISA) limit will increase from £3,000 to £3,600, it is understood.
Mark Hoban, financial secretary to the Treasury, will announce the 20% increase next week, according to sources close to the Treasury.
Plans for JISAs, set to launch on 1 November, were first mooted last October, and are aimed at filling the gap left by the axed child trust fund (CTF). However, unlike CTFs, children with JISAS will not benefit from government contributions.
How they will work
JISAS will work in the same way as an adult ISA, allowing children to shelter £3,600 a year from tax. Like adult ISA, money can be invested in cash or in stocks and shares. However, children are tied to one cash JISA and one stocks and shares JISA at any one time, until they choose to transfer out.
Children with CTFs won't be eligible for JISAS, so those born after 2 January 2011 and before 1 September 2002 only will be entitled to the new tax shelter.
Treasury sources also indicate that the CTF limit, currently set at £1,200, will increase to £3,600, to align the two products.
New JISA launches
Following the announcement next week, several providers are expected to launch their plans for a JISA.
It will invest in Witan's multi-manager investment trust, and will launch on 1 November, according to the trust's marketing director, James Frost.
Fidelity International is also launching a JISA on 1 November. Customers will be able to invest in Fidelity's funds and investment trusts, as well as access 1,200 funds on the asset manager's fund supermarket.
Rob Fisher, head of personal investments at Fidelity International, comments that Fidelity fully supports any move to align the JISA with the CTF going forward.
"Streamlining and simplifying how consumers can save generally is a good thing, but in this case it ensures that every child has an equal opportunity to have their savings maximised," he says.
"With the increased focus on the individual to provide for themselves, rather than rely on the state or employer, the JISA has the ability to teach an important lesson to young people early in their life."
This article was written for Money Observer
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.