IMPORTANT FACTS- ISAs- (Individual Savings Account))
- A tax free savings account- you don’t pay tax on on the interest from a cash ISA, and you don’t pay tax on any income or capital gains you’ve made on investments in a Stocks and Shares ISA.
- You can save a maximum amount per tax year in one of these – currently £20,000 per tax year for 2020-21.
- This £20,000 can be in any combination of cash and/or shares (previous limits have been scrapped)
- Anyone aged between 16 and 18 can hold a cash ISA, but not a stocks and shares ISA
- You can withdraw money from a ISA at any time without losing tax benefits. However, this does not re-set that allowance. If you save up to your entire ISA allowance then withdraw some money, you can’t put anything else back into your ISA in that tax year.
VIDEO– Martin Lewis, Money saving expert, explains ISAs (the key information is in the first 3 minutes)
IMPORTANT FACTS- Junior ISA
- The Tax Free Junior ISA was brought in to replace the Child Trust Fund in 2011.
- Any child (under 18) who is resident within the UK and who isn’t eligible for a child trust fund can hold a Junior ISA Account.
- Anyone who has an interest in the child’s financial future can pay into their Junior ISA Account as long as the annual contribution limit is not exceeded.
- Once the child has reached adulthood (currently 18 years of age) they are able to withdraw their cash whenever they want without losing any tax benefits.
- The Junior NISA limit is £9,000 per tax year for 2020/21.
- Money can be invested in cash or stocks and shares . The limit applies to the total of both types.
IMPORTANT FACTS – LISA’s – Lifetime ISA
- A new savings account in which you can add up to £4000 each year
- At the end of each tax year the government will add a 25% bonus to your contributions e.g. you put in £4000, the government will top up your saving by £1,000,
- The upper limit of bonuses you can receive over the lifetime of the product is £32,000
- It is open to 18 – 39 year olds
- Tax free funds can only be used to buy a first home worth up to £450,000 OR used as pension and be withdrawn from age 60.
- You can transfer LISA funds between providers in the same way you can with normal bank accounts
IMPORTANT FACTS- Child Trust Fund- closed scheme- only for those with existing accounts
- A long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011.
- Under new rules, Child Trust Funds can be converted to Junior ISA’s (that tend to have higher savings interest rates). Children can have either a Child Trust Fund or a Junior ISA, but not both.
- Anybody can put money into the child’s account. The child will be able to withdraw the money from the account when they reach 18.
Essentially, there’s an estimated two million accounts valued at c. £2.5 billion, out of the total six million opened, not accounted for.
Young people could get between £500-£50,000 (if they have had maximum input from parents/ carers/ guardians) from their Child Trust fund which is a huge chunk of money at 18 years old, but we are encouraging young people to find out what they have as this could be life-saving amounts of cash (a serious house deposit!) This scheme will impact from Upper KS2-KS5 so it’s a big proportion of our target audience.
The typical young person who is unlikely to be aware of the fund will have between £1-3000.
Why do trainers need to know about CTF?
Over the next few years, the children that we will be working with will be of the ages that had Child Trust Funds set up for them. The first children to have access to their accounts turned 16 in 2018 so by 2020 we will see the first group of young people who are able to withdraw their Child Trust Fund. This means there are groups of young people who are now able to control and soon, access large sums of money that they may not be used to handling. It is imperative that MyBnk informs young people about their Child Trust Funds, including their rights to control their money and options to invest, save or withdraw their cash.
Eligibility and ages impacted by CTF
Any child born between 1st September 2002 and 2nd January 2011 if:
– Child Benefit had been awarded for them*
– They are living in the UK
– They are not subject to immigration controls
* Child Benefit was awarded to anyone responsible for a child under 16 (20 if in approved education/ training) and lived in the UK.
At 16, the young person is able to take control of their own CTF and become the rightful owner, although they are not able to withdraw any of the funds until they are 18. They must contact their CTF provider if they wish to take control of the account aged 16, and their parents are not legally able to stop this.
At 18, the young person will automatically take control of the account and may be able to withdraw the money.
Details of amounts Government added and limits imposed on additional funds
The government gave £250 to every child born between 1st September 2002 and 1st August 2010. Any children born in this time period from a low income family would receive £500. The money was mailed out to parents in the form of a voucher that they must invest on their childs’ behalf.
For any vouchers that were not invested within a year of issue, HMRC would open a stakeholder account on the childs’ behalf.
On their 7th birthday, children would receive an additional payment voucher of £250 (£500 if a low income family).
Parents, grandparents, carers, friends could all add money to a childs’ CTF. There were different limits imposed by the Government for annual additional payments. This started at £1200 per year but then increased in November 2011 to £3600 and again in April 2018 to £4260 per year per CTF.
In August 2010, the government reduced their payment into CTF’s from £250 down to £50, the £500 that was initially offered to children from low income families was scaled back to £100.
Junior ISA’s replacing CTF (incl. MSE link)
From April 2015, anyone with a CTF was eligible to transfer it to a Junior ISA. These work in the same way as adult ISA’s with different annual limits (£4,368 in 2019-20). It is always worth a young person and their family, looking into the best option for them. JISA’s can be cash or investment or a combination. A child cannot hold both a CTF and a JISA simultaneously. If they open a JISA, the CTF funds must be transferred within 60 days of opening the new account.
More info can be found: https://www.moneysavingexpert.com/savings/child-trust-fund-vouchers/
Investment options for CTF
There are different types of investment options available for CTF’s.
Savings: Similar to a cash JISA, these are low risk and you are likely to get your money + interest.
Investment-shares: Similar to stocks and shares JISA, should invest for a minimum of 5 years, higher risk of losses but potential for higher gains- capital is at risk. If a stakeholder investment it is put into stock market investments. If a shares investment, the registered contact of the account can pick an investment fund to put onto the stock market or pick individual investments.
Sharia and other ethical accounts are also available.
Withdrawal and handling ages
At 16 a child is eligible to take control of their own CTF and can transfer to a JISA or change the investment themselves.
At 18, they will automatically take control of the account.As soon as a young person turns 18, the account will cease to be a CTF. The young person will be sent a letter prior to their 18th birthday to decide on what they want to do, either:
– Roll over the account to an adult ISA automatically (subject to HMRC confirmation)
– Withdraw the money, in its entirety, no partial withdrawals are allowed.
– Leave the money where it is, but there can be no further contributions.
NB The government have not yet finalised the options that are available. The above options are all being considered.
From January 2019, HMRC started to send letters out with a young person’s National insurance number, that reminds them of the existence of their CTF and explaining that they will be able to take control of the account as soon as they turn 16.
Link to Government CTF checker
To track down a CTF:https://www.gov.uk/child-trust-funds
Extra notes for Looked After Children
Some children who grew up in care had Child Trust Fund’s set up for them. The Share Foundation acts as a registered contact for the accounts. Two months before their 16th birthday, The Share Foundation will write to these young people to let them know that they can take control of their accounts. Although Local Authorities/ Trusts sometimes have parental responsibility for looked after children, they are excluded by law from opening or managing a CTF account.
It is also worth noting that looked after children get £500 (prior to April 2010) the same as disabled children and those from low income families.
VIDEO- This gives a good overview of the types of savings accounts available.
IMPORTANT FACTS- Regular Savings Accounts- income tax must be paid on interest received from these accounts
| What is it? | Key features | |
| Regular savings account | -Pay in regular amounts every month- normally £10-£500- Must make minimum number of monthly payments- often 10-11- Might have fixed term of, for eg, one year | -Higher interest than current or ordinary savings account- End of term receive money in account and accrued interest – May offer fixed rate of interest- Pay be penalties for early withdrawals/missing monthly payments |
| Instant access savings account | – Pay in money whenever you want to – Save as little or as much money each month-Open accounts with as little as £1 | – Can withdraw or deposit money at any time- Lower rate of interest than other savings accounts but higherinterest than current accounts- No charges for withdrawing money |
| Children’s savings account | – Same as adult ones but tend to be simple, safe cash accounts- Can be opened with just £1 for any child aged up to 18-Children over 7 can operate the accounts | – Pay some interest- Income tax will be automatically deducted but can be reclaimed by contacting HMRC |
| Credit Union savings account | – Owned and run by members who use their services- All members have something in common e.g. same company, area, church, trade union, or job- Members pool savings and lend to one another- Flexible- you can save what you can, when you can- Normally give a dividend (yearly pay-out) depending on their profit- Some may give fixed rate of interest instead | – Money saved is used to improve services & reward members- For those who have had difficulty opening with a bank or building society- Save money by taking to local collection points, direct debitor deducted directly from wages- Can withdraw money at any time- Nor charges |
| National savings & investments (NS&I) | – Government-backed savings &investment products – Products change often but can include NISAs, bonds and premium bonds (tax-free prizes) | – Money is secure- No limit on how much is guaranteed- May pay interest, income or tax-free prizes- May be some penalties for early encashment- Access to money varies depending on product |