Please note that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
A Junior Individual Savings Account (JISA or Junior ISA) is a type of tax-efficient savings account available in the UK designed specifically for children under the age of 18. They were introduced in the UK on 1st November 2011.
JISAs replaced the Child Trust Fund (CTF) schemes which have since been phased out. However, existing CTF holders are still allowed to continue to hold them and are still allowed to pay up to £9,000 into an existing CTF each year.
Saving in a Junior ISA can be a smart financial move for parents, guardians, and family members to start to save and invest money on behalf of a child, allowing them to build a financial future for their child.
It’s important to note that as the child’s parent or legal guardian you would be responsible for managing the Junior ISA until your child turns 16.
Whilst the funds in a Junior ISA belong to the child, they are unable to access the money until they turn 18. At that point, the Junior ISA automatically becomes an adult ISA, and they would gain full control over their account.
Who can set up a Junior ISA?
Only parents or a guardian with parental responsibility can set up a JISA for a child under the age of 16. However, anyone can make a contribution to the Junior ISA once it has been set up to the annual contribution limit.
What are the different types of Junior ISA available?
There are two types of JISAs:
- A Cash Junior ISA – which functions like a regular cash savings account
- A Stocks and Shares Junior ISA – which allows investments in various financial instruments like stocks, bonds, and funds. This means that the money in a Stocks and Shares Junior ISA has the potential to grow at a higher rate over the medium to long term, but it also carries a degree of investment risk depending upon the assets chosen to invest in.
What if my child already has a Child Trust Fund?
If a child already has a Child Trust Fund (CTF) account, it can be transferred into a JISA to consolidate savings and potentially take advantage of better interest rates or investment options.
How much can I invest each year?
There is a limit to the amount you are able to invest in a JISA, which is set by the Government and is subject to change from one tax year to another. Under current ISA legislation, parents or legal guardians can contribute up to a maximum of £9,000 for the 2023/2024 tax year (which runs from April 6 to April 5 the following year).
You are able to invest in one of each type of JISA every tax year so long as you do not exceed the annual investment limit of £9,000.
What are the tax benefits of investing in a Junior ISA?
- Tax-free growth – Any interest earned, dividends or capital gains made within the JISA are entirely tax-free. This means that the money you save in a JISA can grow without being subject to income tax or capital gains tax, regardless of how much it accumulates over time.
- No tax on withdrawals – When the child turns 18, the JISA automatically converts into an adult ISA, and the account holder gains full control over the funds. At this point, they can withdraw money from the JISA without incurring any tax liabilities.
- No parental income tax liability – The money you contribute to a JISA is considered a gift to the child, and it is treated as their asset. As a result, the contributions do not count towards your own annual ISA allowance, nor are they subject to any gift tax or inheritance tax.
Summary
Every family’s financial circumstances are unique and there are numerous providers in the marketplace that offer all types of investment and retirement solutions. Seeking professional financial advice is also important to ensure your future financial plan is suitable and fits your individual requirements.
Nelsons have a team of qualified financial advisers who are able to assist you with navigating the complexities of investing for the future and the providers available to create the best plan to match your personal circumstances.
How can Nelsons help
If you would like any advice on the above subjects, please don’t hesitate to get in touch with our expert Investment Management team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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