Children cost a lot of money, so putting money aside into an Individual Savings Account (ISA) can help ease the cost of baby-proofing the house and all those nappies!
But what about the children themselves? Saving is a life skill that should be taught from an early age. By opening a Junior ISA (JISA), you can start your (grand)children on their first step to being financially secure when they leave the nest.
So, what are the options available for the next generation?
In November 2011, the Junior ISA, or JISA as it is commonly known to many, was born. This allowed parents to open a junior version of the ISA for their children and at the time, subscribe up to £3,600 per tax year. Over the past 12 years, this subscription limit has risen and has become an appealing savings vehicle, with the capacity to save/invest up to the current annual subscription limit of £9,0001 per tax year.
Why a JISA and not a child’s savings account?
Where previously you could have opened a savings account with a bank and not had to worry too much about the interest earned due to the low rates on offer, in a world where interest rates were rising frequently – as was the case between January 2022 and July 2023 – JISAs have an important part to play for parents saving for their children.
With a children’s savings account, if the child receives more than £100 in interest during the tax year from money given by a parent, you may have to pay tax on the interest if, when combined with your other income, this is found to be above your tax-free allowances. This £100 limit does not, however, apply to a JISA, as interest and investment gains are tax free.
The key aspect of a JISA that differs to the adult version and appeals to many parents, is the access. Unlike the adult ISA, funds held in a JISA cannot be accessed until the child reaches age 18. Much like the adult version, JISAs can be both cash or stocks and shares; however the child can only hold one of each at any one time. However, this does not restrict you to that particular JISA forever, as you still have the full flexibility to transfer between providers.
For a short period, if an individual was born between 6 April 2006 and 5 April 2008, they can open one adult cash ISA before they turn 18, up to the £20,000 limit (based on the rules in the 2024/25 tax year). Therefore, in theory, children born between these dates have a combined tax-free savings allowance in their JISA and adult cash ISA of £29,000.
With a JISA, this must be opened by the child’s parent or legal guardian but other family members such as grandparents can also save on the child’s behalf, provided the annual subscription limit is not breached. The key point here though is that this money belongs to the child, where at age 16 they can take control of the account and from age 18 they can make withdrawals as they wish. That being said, it can be a great way to save for your child’s university fees, fund their first car purchase or to build a deposit to buy their own home, to name but a few potential options.
So, if you are looking for a tax-efficient way to save for your child’s future a JISA just might be the way to go.
Content correct at the time of writing (September 2024).
This article was written by Wealth Management Consultant, Matt O’Hara.
This article has been produced for information purposes only. With investments, your capital may be at risk and past performance is not a guide to future returns. Your investments can go down as well as up. ISA rules apply and may change. Mattioli Woods Limited is authorised and regulated by the Financial Conduct Authority.
