Oct/11 – Junior ISA’s will be introduced as from 1st November 2011
Junior ISA’s are long term, tax-free savings accounts for children up to the age of 18 who live in the UK. The money saved can’t be taken out until the child is 18.
Your child can’t have a Junior ISA if they already have a Child Trust Fund account. There are two types of Junior ISA:
- A cash Junior ISA
- A stocks and shares Junior ISA
Your child can have one or both types of Junior ISA at any one time.
There is no tax to pay on the income or any gains (profits) a Junior ISA makes.
Who the money in the Junior ISA belongs to
The money in the account belongs to your child and can’t be taken out until they are 18.
Putting money into a Junior ISA
Anyone can put money into the account. The total amount that can be paid into a Junior ISA in each tax year is £3,600. (A tax year runs from 6 April one year to 5 April the following year.)
Your 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, £1,000 into a cash Junior ISA and £2,600 into a stocks and shares Junior ISA.
If your child has two Junior ISA’s you can transfer money between them. But you can’t transfer money between a Junior ISA and an adult ISA or between a Junior ISA and a CTF account.
How to open a Junior ISA
If your child is under 16, someone with parental responsibility (for example a parent or step-parent) must open the Junior ISA for them.
Children aged 16 to 18 can open their own Junior ISA. But someone with parental responsibility could still open the account for them.
Children aged 16 could choose to open an adult cash ISA as well as a Junior ISA.
When your child is 18 they can choose to take the money out of the Junior ISA or invest it in a different type of account. Otherwise the Junior ISA will automatically become an adult ISA.
Junior Individual Savings Accounts are a great way to create a nest egg & help provide some financial backup for your child when they reach adulthood and can be used to pay for their university fees or even help them set a foot on the property ladder.
The same limitations, benefits and rules that apply to a regular ISA also apply to a Junior ISA for children that include:
- Once you have deposited money into a Junior ISA and provided it stays there; it will be tax-free year upon year.
- Once your child has reached adulthood (currently 18 years of age) they are able to withdraw their cash whenever they want without losing any tax benefits. Management of the account will pass onto the child once they reach 16 years of age.
- Tax Free Junior ISA’s are covered by the FSCS / Financial Services Compensation Scheme so you can be sure your investment is safe.
- The annual Junior ISA Tax Allowance is currently £3600 per year.
- Parents, grandparents, friends and anyone else with an interest in the child’s financial future can contribute to their Junior ISA (provided the total amount is no more than the annual limit).
- There are two types of Junior ISA: A cash Junior ISA and an Investment Junior ISA (Stocks and shares Junior ISA) and each child will be able to hold one of each account with different providers should they wish but the total combined investment allowance between the two accounts remains at £3600 per tax year.
- Junior ISAs are available to any child born on or after 3rd January 2011 and any child under 18 years of age born before September 2002.
If you would like to discuss setting up a Junior ISA for your child or your grandchild please contact us.