Providers will be able to set the minimum contribution requirements on Junior ISAs.
In draft regulations published today, the government says it wants both cash and stocks and shares Junior ISAs "accessible to all income groups".
A number of providers will offer cash Junior ISAs that require a minimum balance of just £1, and stocks and shares Junior ISAs that accept minimum contributions of £10 per month, it adds.
The government says it therefore does not intend to set a cap on the minimum contributions that can be required.
Danny Cox, head of advice at Hargreaves Lansdown, says: "One of the problems with Child Trust Funds is that, commercially, they were unattractive to much of the investment industry.
"These proposals should allow providers to establish Junior ISAs on terms which will be attractive to the investor under a sustainable business model. This will encourage more competition and better products."
Proposed key features of Junior ISAs
1). All UK resident children (aged under 18) who do not have a CTF will be eligible for Junior ISAs. This includes children who were born before the start of CTF eligibility, in September 2002. This is expected to mean that around six million children are eligible for Junior ISAs when they are introduced, with a further 800,000 becoming eligible each year.
2). Anyone with parental responsibility for an eligible child will be able to open Junior ISAs on their behalf. Eligible children over the age of 16 will also be able to open Junior ISAs for themselves.
3). Until the child reaches 16, accounts will be managed on their behalf by a person with parental responsibility for that child. This will initially be the person who applied for the account for the child, but this responsibility can be transferred to another person with parental responsibility. At age 16, the child assumes management responsibility for their account.
4). Both cash and stocks and shares Junior ISAs will be available. The qualifying investments for each of these (but not the relevant subscription limits) will be the same as for existing ISAs.
5). Children will be able to hold up to one cash and one stocks and shares Junior ISA at a time. It will be possible to transfer accounts between providers, but it will not be possible to hold more than one cash or stocks and shares Junior ISA at any time. It will not be possible to transfer CTFs into Junior ISAs, or vice versa; and as noted above, children with CTFs will not be eligible for Junior ISAs. The two types of accounts will remain separate at present.
6). As with CTFs, any person or organisation will be able to contribute to any child‟s Junior ISA.
7). Each eligible child will be able to receive contributions of up to £3,000 each year into their Junior ISA(s). If the child has both a cash and a stocks and shares Junior ISA, this contribution limit will operate across them both - so a total of £3,000 of contributions each year will be permitted into both accounts combined. There will be no rules on how contributions have to be allocated between cash and stocks and shares Junior ISAs, and it will be possible to transfer funds from one type of Junior ISA to another. The Government welcomes views on whether £3,000 is an appropriate contribution limit.
8). All returns within Junior ISAs (interest on cash accounts; growth and dividends on stocks and shares) will be tax-free - both for the child and their parents.
9). Withdrawals from Junior ISAs will not be permitted by account holders until the child reaches 18, except in cases of terminal illness or death.
10). At the age of 18, the Junior ISA will by default become a normal adult ISA. The funds will then be accessible to the child. Having a Junior ISA will not affect an individual‟s entitlement to adult ISAs. It will be possible for Junior ISA account holders to open adult cash ISAs from the age of 16, and Junior ISA contributions will not impact upon adult ISA subscription limits.
11). Junior ISAs will be offered by account providers. Providers will set their own terms and conditions for Junior ISAs, and will have freedom to do so in most areas, for example setting: charges; the account opening and payment methods they will accept; and any restrictions on who can open their accounts (such as a maximum age).
12). Providers will also be able to set minimum contribution requirements. The Government wants there to be both cash and stocks and shares Junior ISAs accessible to all income groups, and understands that a number of providers will offer cash Junior ISAs that require a minimum balance of just £1; and stocks and shares Junior ISAs that accept minimum contributions of £10 per month. The Government therefore does not intend to set a cap on the minimum contributions that can be required.
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