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.

Whatever hopes and dreams you have for little Johnny or Jemima, it’s reassuring to know that you can help make them happen by setting your child or grandchild on the path to financial security when they are young. 

Whether you want to help them buy their first car, contribute to their first home or just set them on the path to financial independence, here are all the facts you need when it comes to investing for your child or grandchild in a Junior ISA (JISA).
 

The power of regular saving 

The beauty of investing for a child is that they have time on their side and that means that if you start them investing when they are young, their investments also have all the time they need to grow as well. The figures consistently show that for medium to long-term investors, the stock market will get your money working harder than keeping it in cash. And that’s especially so if you reinvest the dividends you earn along the way. 

Take an 18-year-old today whose parents or grandparents invested £55.50 a month on their behalf from birth. Assuming an average growth rate of 5% each year and annual charges of 0.75%, our calculations show they could have accumulated over £18,000 in their JISA by their 18th birthday.1 Please note these figures are for illustration purposes only and are not guaranteed.

Whether you want them to have a pot of money for university, to put towards their first home or to help pay for a wedding, a JISA 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.
 

Time is on their side

As the chart shows, while the initial years may show modest growth, the later years witness more significant leaps - highlighting the advantage of starting early and allowing more time for the investment to grow.

In the very first year, a total investment of £666 has the potential to increase to £681.53 - but by the time your child turns five years old, a total contribution of £3,330 has the potential to reach £3,716.10. And by the child’s 18th birthday, contributions amounting to £11,988 could offer potential returns of £18,023.54.

Can my child/grandchild have a JISA?

Currently children under the age of 18 have an annual JISA allowance of £9,000 a year which their parents, grandparents and friends and family can save into. The money can be saved in a Cash JISA or invested in a Stocks and Shares JISA. Or both.  

The money invested in a JISA cannot be accessed until a child reaches the age of 18, at which point the money will become theirs. Up until that point a parent or guardian, will act as a registered contact. That is not as formal as it sounds though and doesn’t come with any additional responsibilities, other than handling paperwork or the online account linked to it. 

The beauty of a 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 it. 

So, as well as you being able to save into the JISA, 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. 

Start your child’s Junior ISA today
 

Who can invest in a JISA?

Parents, grandparents, aunts, uncles, godparents and in fact, anyone else who wishes to, can contribute to your child’s Junior ISA, up to the annual £9,000 limit.  

The ability to grow their savings, free from tax is the reason why Junior ISAs are a great way to save for a child’s future.
 

Do kids even pay tax? 

Contrary to popular belief, children are liable for income tax, although few are fortunate enough to earn enough on their savings and investments to actually pay any. 

So if you invest outside a JISA there will be tax to pay by your child if they earn above their personal allowance. The basic personal allowance is currently £12,570, so there won’t be any tax to pay as long as all the interest they earn does not come to more than £12,570 in the current tax year.  

As a parent it is also worth bearing in mind that the rules are tougher still if the interest is earned on money given by you. If your child earns more than £100 in interest in any tax year from money you have given them, then you will find that you are personally liable for tax on the interest earned, if it’s above your personal allowance, which is just like your child’s £12,570 in the current tax year. In which case you will pay tax on it at the basic rate, higher or top rate of tax, whichever applies to you. 

The good news for grandparents, aunts, uncles, godparents and anyone else who gives money to a child, is that the same tax liability does not apply.  

And of course, this only applies outside a JISA. If you invest within a JISA for your child or grandchild you do not have to worry about tax, and can let the JISA pot grow, in the knowledge that your child or grandchild won’t pay a penny of tax on money earned within their JISA.
 

What happens with a JISA when they reach 18? 

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 take control and access the money or 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. 

Start your child’s Junior ISA today 

Got a burning question you want to ask? Why not drop us a line. Click here to ask an expert your question

Source:

1 Fidelity International, February 2024. Figures assume a 5% annual growth rate, less a 0.75% annual management charge. Fidelity does not charge a service fee for Junior products. The assumptions do not take inflation into account which would reduce the buying power of the figures shown.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a Junior ISA and tax treatment depends on personal 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. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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