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Junior ISAs

Having responsibility for a child is one of the most exciting and rewarding experiences that life can throw at you.

Along with looking after them and teaching them to cope with the modern world, you will want to be able to provide for them and give them memorable life experiences.

It is also extremely likely that you will want to ensure that they are in a financially advantageous position for when they reach adulthood.

There are a number of things you can do to go some way towards achieving this, and in this article we will look at the Junior ISA (JISA) and the saving opportunities that it offers.

How do junior ISAs work?

Any parent or guardian of an eligible child is able to open a Junior ISA (JISA) on behalf of a child from birth, and they are known as the registered contact.

It is possible to open both a Junior Cash ISA and a Junior Stocks and Shares ISA.

Only someone with parental responsibility can open a JISA but once it has been opened anyone can add money to the account provided that the overall amount paid in each year doesn’t exceed the annual subscription limit.
 

Background

The Junior ISA (JISA) was introduced in 2011 and is available to all UK resident children under the age of 18 who do not have a Child Trust Fund (CTF) account.

JISAs were designed to replace the CTF and, in general offer a much wider range of investment funds, often at significantly lower cost. 

When the JISA was first launched it was not possible to transfer an existing CTF to a JISA.  However, since April 2015 transfers have been allowed.

So if a JISA is preferred, the CTF must first be transferred over to a JISA and the CTF closed. From then on it’s possible for future amounts to be contributed to the JISA instead of the CTF. 

Any parent or guardian of an eligible child is able to open a JISA on behalf of a child from birth, and they are known as the registered contact.

It is possible to open both a Junior Cash ISA and a Junior Stocks and Shares ISA. However, a child is only able to hold one of each type of ISA at any one time.

Only someone with parental responsibility can open a JISA but once it has been opened anyone can add money to the account provided that the overall amount paid in each year doesn’t exceed the annual subscription limit.

Junior Cash ISA vs Junior Stocks and Shares ISA

Rates on Junior Cash ISAs can be very attractive. A Cash ISA provides a feeling of security that stocks and shares cannot offer and they are simple to understand because of their similarities with a regular savings account.

However, if you are looking to keep money held in cash for a long time then you must weigh up the risk of price inflation (things becoming more expensive) eroding the buying power of cash held in the ISA over the long term.

Alternatively, a Junior Stocks and Shares ISA will allow you to invest your child’s money into a range of financial markets, but you must be aware that the value of the invested money can go down as well as up.

Stock markets will often be more volatile, with prices moving up and down over the short-term compared to cash, but if you are planning to invest into a JISA for up to 18 years, the potential for long-term growth will be higher than returns on cash.

Unless you are an experienced investor it is advisable to speak to a Financial Adviser so that you can come up with an appropriate investment strategy that you understand and are fully comfortable with.

Whether you decide to invest in one specific type of JISA, or plan to open both, it is worth spending time researching providers, to look at any underlying administration and investment costs, and also the level of customer service and experience they provide.

This will ensure that you are fully aware of all the options available to you before you invest.

Tax on a Junior ISA

Like an adult ISA, all growth within a JISA is tax-free.

This is a bonus in comparison to a standard children’s savings account where, if the funds come from parents, the parents are subject to tax on the total interest if the interest in a savings account is more than £100 per year, per parent.

This only applies to money given to the child by a parent, and not from grandparents, other relatives and friends, but can still be a hindrance once savings funded by parents reach a significant amount.

What is the junior ISA allowance?

The annual subscription limit for the Junior ISA is £9,000 for the current tax year, however the subscription amount can change each tax year.

As we have already mentioned, there is no restriction on who can contribute towards a JISA once it has been opened as long as the money paid in does not exceed the annual subscription limit.

This is an excellent opportunity for relatives or close family friends to contribute if they wish to do so.

Young adults aged 16 and 17 are allowed to open an adult Cash ISA as well as continue to hold their Junior ISA until aged 18.

This means that they can benefit from the annual JISA subscription (currently £9,000) but are also able to contribute the regular ISA subscription limit (currently £20,000) into an adult Cash ISA as there is no overlap between the two subscriptions.

This is a great opportunity to utilise both subscription limits, meaning that more money can be saved to grow tax-free.

For the savvy investor, it is also possible to contribute the maximum JISA allowance in the same tax year as a child turns 18, as long as this is done before the child’s 18th birthday. After that date, all JISA accounts will transfer into regular adult ISAs and the regular ISA allowance will be the only allowance available to the saver.

Transferring your Junior ISA 

Junior ISA transfers can be made between a Junior Cash ISA and a Junior Stocks and Shares ISA and vice versa but you must ensure that a child does not end up with more than one type of either account at any time.

In short, they are only allowed to own one Junior Cash ISA and one Junior S&S ISA.

For example, if after conducting some research you found another Junior Cash ISA that was providing a higher interest rate than the current Junior Cash ISA, you would have to undertake a full transfer from the original Junior Cash ISA to the one with the better rate.

This is the same process if you wanted to transfer from your current Junior Stocks and Shares ISA to a new one.

If you fail to make a full transfer then it would mean that you would have two Junior Cash ISAs or two Junior Stocks and Shares ISAs, which is forbidden under the current rules.

If you only wanted to transfer a smaller sum of money between JISA accounts, you would only be able to do this between a Junior Cash ISA and a Junior Stocks and Shares ISA or vice versa.

How to transfer a Child Trust Fund to a Junior ISA? 


It is now possible to transfer a Child Trust Fund across to a Junior ISA.  

After the transfer is complete you will still have your £9,000 annual JISA subscription limit available, even if you have already contributed the annual CTF subscription of £9,000 in to the CTF that tax year, before completing any transfer.  

This provides an excellent opportunity to make a double contribution in the same tax year.

Control

As the parent or guardian, you will control the JISA on behalf of your child until they reach the age of 16.

At that point your child is able to manage their accounts but they will not be able to make any withdrawals until their 18th birthday, unless there are exceptional medical circumstances.

When your child turns 18 their JISA will revert to a normal adult ISA and you will have no further control as to how the money is invested or withdrawn.

This loss of control is a natural concern for some parents so it is sensible to give this some thought to ensure that you are comfortable with your child having access to a capital sum at a relatively young age before you commit to saving in a JISA.

The Junior ISA is a great place to start when it comes to saving for your children and Junior ISAs can provide a valuable savings pot to get them set up for adult life.

They provide an excellent opportunity for parents and guardians to explain the value of money and savings to their children from a young age and a chance to educate them about the importance of financial planning from an early age. 

If you would like to know more about setting up a Junior ISA, please do not hesitate to get in touch with an Adviser who will be more than happy to talk and get a better understanding of your circumstances before exploring the options available.