Every child born in the UK between 1 September 2002 and 2 January 2011 would have had a Child Trust Fund (CTF) established for them (if not by a parent or legal guardian, then by the government). For a period between these dates, the government also paid government bonuses into children’s CTFs.
From 2 January 2011 onwards, CTFs were replaced by Junior ISAs (JISAs). CTFs and JISAs offer the same tax benefits (tax-free income and capital gains) and have the same annual contribution allowance (£4,368 in the 2019/20 tax year). Normally neither can be accessed until the child turns age 18, at which point they both automatically convert to full adult ISAs.
JISAs can be opened for anyone under the age of 18 who is a UK resident and who does not hold a CTF, or anyone under the age of 18 who transfers their CTF to the new JISA and closes the CTF in the process.
When compared with JISAs, CTFs often have restricted investment options (for example being limited to the provider’s own in-house investments) and higher charges. This is because a competitive marketplace for JISAs exists, whereas CTFs are now legacy arrangements, so transferring your child’s CTF to a new JISA can be worthwhile.
Although the CTF and JISA allowances are the same, there is a quirk in the rules which permits up to three times the allowance to be contributed in the tax year in which a CTF to JISA transfer takes place. This is because the subscription year for the CTF runs in line with the child’s birthday, whereas the JISA runs in line with the tax year, and the allowances are completely independent.
For a child born on 1 November, the subscription year for the CTF runs from 1 November to 31 October.
So if not already used earlier, on 31 October 2019, a CTF contribution of £4,368 could be made. And from 1 November 2019, another CTF contribution of £4,368 could be made.
The CTF could then be transferred to a JISA, at which point the JISA allowance for the 2019/20 tax year (also £4,368) could be used before the end of the tax year (5 April 2020).
This effectively allows for up to three contributions (totalling up to £13,104) to be made in the same tax year.
Points to Note
If you maximised your child’s CTF contributions after their birthday but before the end of the tax year, you may still be able to contribute a further amount after the start of the new tax year before their next birthday (as the CTF allowance usually increases in line with inflation on 6 April).
When transferring a CTF to a JISA, you should ensure that the registered contact on both accounts is the same, as the transfer will be otherwise rejected.