Government launches junior ISA for children

THE government yesterday said it would introduce a new tax free savings account for children, to replace the child trust fund it scrapped when it came into office.

Funds in the so-called “Junior ISA” will be deposited by parents, but the account will be owned by the child and will be locked until they reach adulthood. The accounts are expected to be available from autumn 2011.

Investments can be made in both cash and stocks and all returns will be tax free, but annual contributions will be capped.

The government has not yet decided the annual contribution cap, although Treasury sources indicated it would likely be the same as that for an adult individual savings account (ISA).

In 2011-12, adult investors will be able to put £10,680 in an ISA, after the limit rose by £480 in line with inflation.

Unlike the child trust fund, which will be scrapped in January 2011, the government will not make any contributions to the account.

Mark Hoban, financial secretary to the Treasury, said: “The introduction of this new account means that we can still offer people a clear way of saving for their children, while saving the half a billion pounds a year that we currently spend on Child Trust Funds.”