Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Junior ISAs
Jasmine Birtles
1st Feb 2022
The Junior ISA allows you to save tax-free for your kids. You get an allowance each year, which in 2022/23 is £9,000.
Even if the amount you can put in stays the same for the next 18 years (which it won’t – it will go up gradually), by the time your child is 18, you could put in £162,000. That’s just the amount you put in though. If you invest it in stocks and shares products, your child could have twice that amount by the time they get to university.
- What is a Junior ISA. How does it work?
- Who is eligible for a Junior ISA?
- Will a Junior ISA benefit my children?
- Children’s savings alternatives
What is a Junior ISA? How does it work?
Since 1 November 2011, your children’s savings have been able to enjoy the same tax-free status that adults get through their ISA.
From April 6th 2020, you can save up to £9,000 a year in a Junior ISA on your child’s behalf in a
- cash ISA,
- stocks and shares ISA
- or split between the two.
It’s the perfect way to put aside money in preparation for university tuition fees or maybe even a deposit for a house.
What else do you need to know?
- Both cash and stocks and shares Junior ISAs are available. You can either spread the total allowance across the two or just choose to put it all in one. It’s possible to transfer accounts between providers. However, you cannot hold more than one of each type at any one time.
- Junior ISAs replaced the Child Trust Fund (CTF) and have the same annual limit but – unlike the CTF – there will be no government cash contributions to each child’s savings pot.
- A child’s parent or guardian can open the account for the child but the money belongs to the child.
- Children born between September 1, 2002 and January 2, 2011 can switch from a CTF to a junior ISA.
- Until the child reaches 16, accounts are managed on their behalf by a person with parental responsibility for that child. This is initially the person who applied for the account for the child, but this ‘ownership’ can be transferred to another person with parental responsibility.
- At age 16, the child may be able to assume management responsibility for their account. Eligible children over the age of 16 can also open Junior ISAs for themselves.
- Withdrawals from Junior ISAs will not be permitted by account holders until the child reaches 18.
- There are a lot of Junior ISAs on the market, with many providers offering cash Junior ISAs that require a minimum balance of just £1l There are also stocks and shares Junior ISAs that accept minimum contributions of £10 per month.
Who is eligible for a Junior ISA?
Junior ISAs are available to children living in the UK.
That includes:
- Children born on or after 3 January 2011
- Under 18s born before September 2002
Will a Junior ISA benefit my children?
Short answer? YES!
A Junior ISA will allow you to grow a savings pot for your child that isn’t subject to capital gains tax, income tax on savings or further tax on dividend income.
Anything that stops you having to waste money on tax is a good thing. When it comes to investments, saving tax each year is a very good thing. It means your money will grow even more (thanks to compound interest).
don’t waste it on a savings account
The great thing about any ISA is that it stops you having to pay tax on your gains. For savings accounts it means you don’t pay tax on the interest and for shares it means you don’t pay tax on the growth.
BUT…
- you don’t have to pay tax now on the first £1,000 of interest you make on savings accounts anyway and, with interest rates being what they are, you would have to have a LOAD of money in there to get anywhere near £1,000. This makes Cash ISAs almost useless.
- The other reason NOT to open a Cash ISA for your child is that they have always been pretty useless as long-term savings options. Savings accounts just don’t do as well as stocks and shares when it comes to long-term investing. Your kids have years for the investment to grow so they need to have their money in stocks and shares, not boring savings accounts.
In fact, Danny Cox from Hargreaves Lansdown, believes the rewards of a stocks and shares Junior ISA could be huge: “Save £9,000 in a Junior ISA every year from birth until age 18 and their coming of age present could be around £215,000 tax-free, assuming a 3% growth after tax and charges.”
do it now!
Also bear in mind that the sooner you start saving, the better. You’d do well to invest as much as you can afford early on in the Junior ISA’s lifetime. The earlier you invest (you can open the Junior ISA as soon as your child is born), the longer your investment has to mature and gain interest,
If it’s tough to free up cash at this stage, grandparents may be happy to help get the JISA off to a good start.”
What else do you need to know?
- Bear in mind that there are other tax-free savings options for children too. And importantly your child cannot touch the money until they are 18 (it can be transferred between providers but not withdrawn) which although a good thing is, of course, inflexible.
- You may want to take advantage of more flexible investments and savings
Children’s savings alternatives
Regular savings accounts
Regular savings accounts require you to put a regular amount of money into the account each month, in return for a higher rate of interest.
However, if you miss a month’s payment (or withdraw your money before the term of the account is up) you will often lose the rate.
Remember, though, that long-term, cash savings usually make much less money for your child than stocks and shares investments do.
Easy-access savings accounts
Easy access accounts let your kids access their money whenever they need it. However, the rates on these are variable, so you need to keep an eye on them in case they plunge downwards.
Again, remember the returns on these kinds of savings accounts are FAR less than they usually are on stocks and shares funds for the long-term
Having watched you on BBC how do I set up a Shares ISA for my grandchildren, & what Tracker Funds should I look for?
I can’t earn over £90,000 tax free, so why should someone else just because they had rich parents as a child. At the end of the day (as with adult ISA’s) we are all paying more tax so the wealth can enter tax avoidance schemes. Seems very fair.