Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a Junior ISA will not be possible until the child reaches age 18.
Young savers were given a financial boost in the Budget, with the Junior ISA (JISA) allowance set to more than double from April.
Currently every eligible child in the UK under the age of 16 has an annual Junior ISA allowance of £4,368 a year into which their parents, grandparents and friends and family can save into. The money can be saved in a Cash ISA or invested in a Stocks and Shares ISA. From April the annual allowance increases to £9,000, giving parents and grandparents a fantastic opportunity to super-charge their child’s or grandchild’s savings.
Junior ISAs, which replaced Child Trust Funds in 2011, have proved to be increasingly popular among parents wanting to kick-start their children’s saving habit. Some 907,000 Junior ISAs were opened in the 2017-18 tax year, according to the latest figures from HMRC, more than three times the 296,000 opened in 2012.
And they are popular for good reason. Whether you want them to have a pot of money for university, to put towards their first home or to help pay for their wedding, a Junior ISA is an ideal way to start them on the path to being a smart saver. Designed for children, it’s a flexible and tax-efficient way to help them save with no income or capital gains tax payable on any returns.
The money invested in a Junior ISA cannot be accessed until a child reaches the age of 18, at which point the money will become theirs.
The beauty of the JISA, aside from the tax-efficiency it offers, and the fact that the money is locked away out of temptation’s reach, is that anyone can contribute to a child’s JISA.
So, as well as you being able to save into the JISA for your child, friends and family can contribute too. Christmas and birthday money can all be added over the years, as long as the total amount saved in any year is within the annual tax-free limit.
When your child reaches the age of 18, the JISA is automatically converted into a regular ISA, so your now fully-fledged adult son or daughter can continue saving tax-efficiently for whatever they may need – whether that is a car, the deposit for their first home or the money for more day-to-day expenses, such as living costs at university.
One less widely-known perk of holding a Junior ISA is that between the age of 16 and 18 your teenage child can also open a regular cash ISA and contribute to that, in addition to whatever has been added to their JISA over those two years. That gives them the unique ability to save an additional £20,000 in the 2020/21 tax year; giving them a bigger tax-free savings allowance than any other group - with a total allowance of £29,000.
Start their savings now and you can be sure the kids will indeed be alright.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Junior ISAs are long term tax-efficient savings accounts for children. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.