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.
Witan Investment Services, which runs Witan Investment Trust, has already set down terms for its Jump Junior ISA, part of its children savings plan Jump Savings.
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