Today marks the launch of the government’s latest initiative to help family members and friends save for a child’s future. With the financial pressures on the young growing year by year, we guide you through this important and valuable tax break.
What is a Junior ISA?
The Junior ISA is a savings scheme which replaces the Child Trust Fund and allows children to build up a tax-efficient savings or investment lump sum, but without the government handout to start it off.
How much is the annual contribution limit?
Family and friends can contribute up to a maximum of £3,600 each year and this limit will rise annually in line with the Consumer Price Index from 6th April 2013.
Who is eligible?
JISAs are available to all UK resident children born since 4th January 2011 as well as those who are still under the age of 18 but who were not born before the beginning of Child Trust Fund eligibility (i.e. before 1st September 2002).
What sort of accounts are there?
Like an adult ISA (Individual Savings Account), there will be cash Junior ISAs and stocks and shares Junior ISAs. Each child will be able to have one account of each type, although the annual contribution limit will apply across both accounts.
What does tax-efficient mean in the context of Junior ISAs?
Cash Junior ISAs will receive interest without deduction of tax whilst stocks and shares Junior ISAs will grow free of any potential capital gains tax liability and any ‘interest’ income (such as that from government or corporate bond holdings) will be free of income tax. However, dividends from shares are paid with 10% tax deducted and this cannot be reclaimed.
Who can contribute?
Anyone can contribute provided overall subscriptions remain within the annual limit (£3,600 at launch).
Who is the registered contact?
The account must be opened by a ‘registered contact’ who must be someone with parental responsibility for the child, unless the child is over the age of 16 in which case they can open the account themselves. The registered contact will also be the person who is responsible for deciding how the account is invested. For example, if the chosen stocks and shares Junior ISA allows access to a choice of investment funds, it is the registered contact’s responsibility to choose which funds to use and how much is to be invested in each.
When can the money be accessed?
The account belongs to the child and they cannot access the money themselves until they reach 18. The only exception is in the case of terminal illness when the registered contact can apply to be allowed to access the account early.
What happens as the child grows up?
From age 16 the child can assume responsibility for the account. This means they can decide how it is invested, although they cannot withdraw the money. At age 18, the Junior ISA will roll over into an adult ISA and the account holder can do as they wish as long as they have signed up to the adult account’s terms and conditions.
Can you still open an adult ISA at age 16?
Yes, adult cash ISAs are available for those aged 16 or over. This means that in theory a young person could have a Junior ISA into which up to £3,600 a year could be invested alongside an adult cash ISA into which they could invest up to a further £5,340 a year (all figures at current levels).
Once I choose a Junior ISA do I have to stick with it?
Unlike an adult ISA where investors can open a new account each year with a different provider, a child can only have one stocks and shares Junior ISA and one cash Junior IAS at a time. It will be possible to switch to a new provider but the whole value of the account will have to be transferred.
Will Fair Investment launch a Junior ISA?
Although the regulations were only finalised at the end of July this year, we have been working hard to bring you a highly competitive Junior ISA offering and are intending to launch later this month.
Our product will have an extensive range of investments funds available and in order to help and guide you through the investment options available we will also be providing you with a select range of Junior ISA funds.
No news, feature article or comment should be seen as a personal recommendation to invest. If you are in any doubt as to the suitability of a particular investment you should seek independent financial advice.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.
© Fair Investment Company Ltd