Government Announces New Tax-Free Savings Plan For Families

27/10/2010 12:41 | Updated 22 May 2015

The government has announced a new tax-free savings plan for children, as a replacement for the Child Trust Fund.

The plans will give a welcome boost middle-class families.

Junior Independent Savings Accounts (ISAs) will allow families to save for their child's university fees or to give them a lump sum when they turn 18.

Unlike Child Trust Funds, the new ISAs don't involve the government paying in any money. But families will still be able to put money aside tax free, and children over eight, who never qualified for the fund, will also be able to open an account.Funds placed in the account will belong to the child rather than the parents. They will be locked away until the child reaches adulthood.

The new account is expected to be available by Autumn 2011.

Child Trust Funds, which paid between £500 and £1,000 to more than five million children, were scrapped in May by the government because they were deemed too expensive. These were paid to children at birth, with a top-up when they reached seven.

Around five million children in Britain have had CTFs opened for them since the initiative was launched in 2002. Children received vouchers for £250 at birth and on their seventh birthday. Existing accounts will continue until maturity on the child's 18th birthday, and friends and families can continue to contribute up to £1200 a year.

Under the Junior ISAs, parents can decide whether they want to invest in cash or stocks and shares. They are expected to be able to pay up to £1,200 a year.

Treasury minister Mark Hoban said he believed the new account was a sensible but cheaper way of encouraging saving. He said: 'I am committed to ensuring that all parents can save for their children's future in a simple and straightforward account.

'This account means that we can still offer people a clear way of saving for their children, while saving the £½billion a year that we currently spend on the Child Trust Fund.'

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