What Is a Junior ISA?
A Junior ISA is a long‑term, tax‑free savings or investment account for children under 18. It allows parents and guardians to build a pot of money that the child can access when they turn 18. The annual allowance is £9,000 per child.
Why a Junior ISA Is a Good Idea
- ISA savings grow tax‑free and withdrawals are also tax‑free
- No income tax or capital gains tax
- Can be held in cash or stocks and shares
- Provides a lump sum at 18, which can be used towards a house deposit, university fees, or a first car, for example
Key consideration: access at age 18
One of the biggest considerations with a Junior ISA is control.
- The money becomes the child’s at age 18, regardless of how they intend to use it
- At 16, they can take over management of the account (but cannot withdraw funds until 18)
What is a junior pension?
A Junior Pension (often a Junior SIPP) is a pension opened on behalf of a child. It is designed for long‑term retirement savings and benefits from tax relief, which is available even if the child has no earnings.
Allowance
- You can contribute up to £2,880 per year, even if the child has no earnings
- 20% tax relief is applied, increasing the gross amount to £3,600
- If a child has earned income, they can contribute up to the lower of their total earnings or £60,000 per year
Why a junior pension is a good idea
- Tax relief boosts contributions immediately
- Decades of potential compounded investment growth
- Funds cannot be accessed until the child reaches pension age (currently 55, rising to 57)
- Provides an excellent early start for pension provision
How a financial adviser can help
A financial adviser can add value by:
1. Reviewing and adjusting your plan over time: An adviser can create a financial plan for you and your children, addressing both more immediate needs, such as the cost of further education, and long‑term objectives such as boosting retirement provision.
2. Creating long‑term habits with financial education: Starting early and doing the right things can transform your child’s long‑term finances. Working with an adviser can help maintain good habits as more options become available later in life.
3. Ensuring allowances are utilised for tax efficiency and different savings goals
4. Helping you choose the right investment strategy: An adviser can recommend a suitable investment portfolio to match your objectives. Cash may be appropriate as your child approaches 18 if they intend to access the money, whereas equities may offer greater long‑term growth potential.
How can we help?
Jack Green is an Associate and Independent Financial Adviser in our expert Investment Management team, specialising in pensions and retirement planning, cash flow modelling, investment advice for individuals, Inheritance Tax planning and protection planning.
For advice on or further information concerning the subjects discussed in this article, please contact Jack or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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