This issue’s Technical Connection article looks at JISAs and discretionary trusts
Q I have a client who would like to set up a Junior ISA (JISA) for his 13-year-old daughter. The daughter does not currently have a JISA but does have an old Child Trust Fund (CTF) account. Am I right to assume that the CTF would need to be transferred? Also, can anyone make payments into the JISA?
A If the client wishes to set up a JISA for his daughter, then it would be advisable to transfer the CTF account. This is because his daughter cannot hold both a CTF account and a JISA.
Where a CTF is transferred, the whole account must be transferred as it is not possible to make part transfers of CTF investments. Once the account has been transferred, the CTF provider must close the account. The CTF can be transferred to either a cash or stocks and shares JISA.
It is possible for anyone to subscribe into a JISA, provided total subscriptions do not exceed £9,000 in a tax year. Income and capital gains will be exempt from tax. Any amounts paid by a parent into a JISA for their child will not be subject to the parental settlement provisions, so would not be taxed on the parent even if income exceeds £100 gross in a tax year (the parental settlement rules also do not apply to a CTF account). However, any payments made into the account will be treated as gifts for inheritance tax, unless covered by the annual exemption of £3,000 or by the normal expenditure out of income exemption.
Q I have a client who set up a family discretionary trust, which is approaching its 10-year anniversary. The trust assets include an investment bond and shares, which qualify for business relief. If the shares qualify for relief and have been invested for more than two years, can this be ignored from the trust value in assessing the overall value and whether this is in excess of £325,000 for tax purposes?
A Assets/shares that qualify for 100% business relief would reduce the current value of the trust fund for the purpose of the 10-yearly periodic charge calculation. Therefore, in cases where the only assets in the trust at the 10-year anniversary are assets that qualify for 100% business relief, there will be no periodic charge. In this case, however, you would just reduce the current value of the trust fund by the amount that qualifies for 100% relief.
Going forward, the same rule would apply for the next 10-year anniversary. However, the trustees ought to be aware that, if assets/shares are subsequently sold and the proceeds are reinvested in assets that no longer qualify for business relief, then the periodic charge would be based on the value of the trust fund at that time, i.e. with no reduction applicable against the value of the trust fund.
Image credit | Getty
Taken from the Technical Connection Techlink Professional question bank.
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