Time is running out to use the tax loophole that lets parents stash £36,000 into an Isa

Telegraph

26-03-2025

With the end of the tax year just around the corner, many parents are keen to maximise tax allowances and save for their children's future, particularly given speculation that Isa allowances could soon be cut.
But if your child has a Child Trust Fund, you might be able to take advantage of a quirk in the system that could see you stash away up to £36,000 for your child tax-free – far exceeding the usual £9,000 annual Junior Isa limit.
However, you'll need to act quickly as there's very little time left to make the most of this tax tip.
This Telegraph Money guide will cover:
Who is eligible for the children's saving trick?
How to do it
Is switching to a Junior Isa worth it?
Who is eligible for the children's saving trick?
According to stockbroker AJ Bell, the strategy involves using both a Child Trust Fund and a Junior Isa. This means that to be eligible your child must already hold a Child Trust Fund.
Child Trust Funds were set up by the Government for children born between September 2002 and January 2011. They currently hold £10.5bn worth of savings, according to the National Audit Office, and many people, now adults, don't realise they have money stashed away.
Junior Isas replaced them in 2011, and those with the old accounts have the option of transferring their balance across to the Isas – you can't hold both simultaneously.
Up to £9,000 can be paid into either a Child Trust Fund or a Junior Isa each year. However, while the annual allowance for Junior Isas renews on April 6 at the start of a new tax year, the annual allowance for Child Trust Funds renews on your child's birthday.
This means that if your child's birthday falls before the end of the tax year on April 5, you could potentially save £9,000 before their birthday, another £9,000 just after their birthday, and then transfer the funds to a Junior Isa to take advantage of its allowance.
Isas are one of Britain's favourite ways to save because anything inside an Isa, whether savings or investments, grows free of savings, capital gains and dividend tax. Withdrawals are also tax-free.
How to do it
Let's say your child's birthday is March 28, and they hold a Child Trust Fund. If you have the money available, you could pay £9,000 into their account on March 27, followed by another £9,000 on March 29 after your child's birthday when the allowance resets.
You could then transfer the pot to a Junior Isa on March 31. If the transfer completes in time (some providers may take a couple of weeks to complete the process), this gives you a brand-new allowance of £9,000 to use before the end of the tax year, bringing your total contribution to £27,000.
Come April 6, you'll be able to use the new Junior Isa allowance of £9,000, meaning you'll have stashed away a total of £36,000 for your child completely tax-free.
Of course, there are a few caveats to be aware of. First, you'll need to be able to afford to put away £36,000 over the next week or so. Second, whether you can take advantage of this loophole in full depends on the date of your child's birthday.
If your child's birthday falls just before the end of the tax year in April, it's unlikely you'll have enough time to make two contributions to the Child Trust Fund and transfer the account to a Junior Isa before the start of the new tax year.
Even if your child's birthday is in March, you may find that transferring the CTF to a Jisa takes you beyond the start of the new tax year, in which case you won't be able to pay in the Jisa allowance of £9,000 before April 6. But even so, making this switch still gives you a chance to tuck away £18,000 now, and a further £9,000 in the new tax year.
Is switching to a Junior Isa worth it?
Whatever your situation, if your child currently has a Child Trust Fund, it may be worth transferring those funds to a Junior Isa, where there is more choice of accounts and options are generally more competitive.
One question you need to ask yourself is whether to open a Junior cash Isa or a Junior stocks and shares Isa.
The younger your child is, the more likely it is that their savings will ride out the volatility of the stock market and deliver better returns over a long period of time.
Charlene Young, pensions and savings expert at AJ Bell, said: 'Even if a family cannot make full use of the £36,000 loophole, many young people who have Child Trust Funds but are still under 18 would benefit from a transfer to a Junior Isa anyway, where the charges will likely be lower, and they'll have a much wider investment choice.'
The money must be locked away until the child turns 18, at which point the Junior Isa is automatically rolled over into an adult Isa. The child can access their money if they wish to or continue saving for their future.
Ms Young said: 'Although Junior Isa rules state that accounts must be set up and managed by a parent or legal guardian, anyone can pay money into it as a gift.
'This makes them especially useful for grandparents looking to make use of gifting allowances with frozen inheritance tax thresholds until 2030, and the prospect of unused pensions being brought into the value of their estates, too.'
If your child already holds a Junior Isa, it's not possible to use a Child Trust Fund. Instead, there is still time to use up this tax year's allowance of £9,000, before the new £9,000 allowance kicks in on April 6.
These savings can soon add up. A parent managed to save the full £9,000 Isa allowance every year into a Junior cash Isa paying a 1.5pc interest rate, then by the time the child turned 18, the account would be worth £187,170.