What is a Junior ISA?
Junior ISAs are tax-free savings accounts aimed at children under 18. They were introduced in November 2011 as a replacement for child trust funds. Around six million children are eligible to open a Junior ISA according to the Treasury, and 800,000 more become eligible each year. Some providers will allow parents to open the accounts for their children up until they are 18, others allow children to open their own at 16 or 17. However, children who already have a child trust fund cannot open a junior ISA.
The accounts are similar to cash ISAs and shield the growth in cash from income and capital gains tax. There is an annual contribution limit of £3,720, which applies until April 5th 2014. After then the limit will be updated each year in line with the Consumer Price Index. Anyone can contribute to a junior ISA account, so they are a great way for family members and friends to contribute to the child’s future.
As with other ISAs there are cash ISAs and stocks and shares ISAs. Switching from one to the other is allowed.
Money in junior ISAs cannot be accessed until the child turns 18. At this time the account switches to a full ISA and the standard adult limits apply.
Junior ISAs are a great idea for parents who want to start investing for their child’s future as soon as possible. Depending on the product, parents can start paying in from around £10 a month, so it does not have to negatively impact their current financial situation. And at birthdays and Christmas family members and friends can also pay in to the account to help swell the coffers.
Ethical fund options can also be available, and some junior ISA accounts can be managed online so parents can check on how the money is doing.
The general aim of the junior ISA is to provide the child with a tax-free lump sum as they enter adulthood. This could be used to help pay for university fees, to buy their first car or simply to act as a safety net. If they choose, teenagers can keep the money in an ISA and continue to grow their funds.
Starting a family can bring a lot of stress and worry, so being able to plan ahead financially for the child is a big benefit of a junior ISA. Even if parents cannot afford to contribute each month, having the option to save and grow the investment is good practice.
Category: Financial Planning, Investing
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