In a significant move aimed at providing greater flexibility and better returns for savers, the UK government has allowed the transfer of savings from Child Trust Funds (CTFs) to Junior ISAs since April 2015. This change, long anticipated by financial experts, was championed by then-Chancellor of the Exchequer George Osborne, who stated:
“The Government supports hardworking families who want to save for their children. So I’m delighted that, as a result of these changes, over 6 million children who currently have savings in a Child Trust Fund will be able to benefit from better returns and lower charges on those savings in the future.”
This legislation has positively impacted approximately 6.1 million children across the UK, whose savings in CTFs are collectively estimated to be worth almost £5 billion. However, several important updates and procedural enhancements have been made since the initial announcement.
Enhanced Accessibility and Higher Contribution Limits
As of 2024, families can transfer funds from CTFs to Junior ISAs, benefiting from the latter’s often superior interest rates and lower charges. Junior ISAs, introduced in 2011 after the closure of the CTF scheme, have become increasingly popular due to their competitive rates, which frequently surpass those of CTFs. For instance, Junior ISAs have historically offered interest rates as high as 6%, compared to CTFs’ 3%.
Moreover, the annual contribution limit for both CTFs and Junior ISAs has seen substantial increases. While it stood at £3,840 in the 2014/15 tax year, the current limit is £9,000 per annum. This allows for significant growth in these accounts, providing a robust savings foundation for children.
Simplified Transfer Process
Initially, there were uncertainties about how parents could manually transfer savings between a CTF and a Junior ISA. Today, the process is straightforward and user-friendly. Parents or guardians can approach their Junior ISA provider, who will handle the transfer directly from the CTF provider. This seamless process ensures that the savings are efficiently moved, retaining their tax-free status and potentially benefiting from higher interest rates sooner.
Impact on Universal Credit and Benefits
For families with substantial savings in CTFs, there are implications for means-tested benefits such as Universal Credit. Savings exceeding £6,000 can lead to reduced benefit payments. Approximately 80,000 young people are affected, with around 4,000 eligible for Universal Credit experiencing lower payments due to their savings.
Assistance for Families with Vulnerable Members
A notable update since 2021 addresses the challenges faced by families with members who lack mental capacity. A new streamlined process allows for the withdrawal of up to £2,500 from matured CTFs or Junior ISAs without needing court permission, simplifying access for families and maintaining vital safeguards against abuse.
Example Case Study
Consider a family with a CTF worth £10,000. Transferring this amount to a Junior ISA offering 6% interest could yield significantly higher returns over time compared to leaving the funds in a CTF at 3%. Additionally, by utilizing the increased annual contribution limit of £9,000, the family can ensure their child’s savings grow more robustly, providing a substantial financial asset when the child reaches 18.
Conclusion and Professional Advice
Transferring savings from a Child Trust Fund to a Junior ISA offers substantial benefits, including higher interest rates, greater flexibility, and improved long-term growth potential. For detailed advice tailored to your specific circumstances, including tax implications and benefit considerations, please contact us on 020 8780 2349 or via our contact page to arrange a complimentary, no-obligation meeting.
As tax and accounting professionals, TaxAgility is here to ensure you navigate these changes effectively, maximising the financial benefits for your family’s future.