Individual Savings Accounts (ISAs) for children, known as Junior ISAs, are now available, offering a new tax-free way of saving for your child’s future.
What is a Junior ISA?
Junior ISAs are long term, tax-free savings accounts for children up to the age of 18. The money saved cannot be taken out until the child is 18.
Who can have a Junior ISA?
A child can have a Junior ISA if they are under 18 years old, live in the UK and are not entitled to a Child Trust Fund (CTF) account. A child cannot have a Junior ISA if they already have a CTF account. Children aged 16 can choose to open an adult cash ISA as well as a Junior ISA.
How does a Junior ISA work?
As with adult ISAs, there are two types of Junior ISA, a cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both types at any one time. There is no tax to pay on the income or any gains (profits) from the investment.
Who does the money in the Junior ISA belong to?
The money in the account belongs to the child and cannot be withdrawn until they attain the age of 18. There are, however, exceptions to this, for example if a child becomes terminally ill or dies.
Contributing to a Junior ISA
Anyone is able to contribute to the account. The total amount that can be paid into a Junior ISA in each tax year is £3,600.
A child can have both a cash and a stocks and shares Junior ISA. If they do, the total amount that can be paid into the two accounts in each tax year is £3,600. For example, if £1,000 were paid into a cash Junior ISA, a maximum of £2,600 could be contributed into a stocks and shares Junior ISA. Alternatively, the whole amount may be invested in one type.
If a child has two Junior ISAs it is possible to transfer money between them. It is not permissible, however, to transfer money between a Junior ISA and an adult ISA or between a Junior ISA and a CTF account.
Should a child move abroad, contributions may still be made to their Junior ISA.
How can you open a Junior ISA?
If a child is under 16, someone with parental responsibility must open the Junior ISA for them. Children aged 16 to 18 are able to open their own Junior ISA. But someone with parental responsibility could still open the account for them.
Managing a Junior ISA
The Junior ISA will be opened in a child’s name, but the person who opens the account is responsible for managing it. They are called the ‘registered contact’. The registered contact is the person responsible for keeping all the paperwork, reporting certain changes of circumstances, e.g. change of address and is the only one who can change the account or provider.
It is possible to transfer to a different type of Junior ISA or to a different provider at any time.
The registered contact can also be changed to someone else with parental responsibility at any time.
What happens when a child is aged 16 or 18?
When a child is aged 16 they can become the registered contact and manage their own account if they want to.
When your child is 18 they can choose to withdraw money from the investment or invest it in a different type of account. Otherwise the Junior ISA will automatically become an adult ISA.
Please feel free to contact us should you wish to discuss this or other investment opportunities for your children.