Child Trust Funds have bitten the dust and JISAs are the new kid on the block. Set aside a tax free pot of cash for your kids which you, friends and Great Aunty Molly can pay into. You can set one up online in less than half an hour.
All children resident in the UK are eligible for a Junior ISA. Anyone – parents, grannies, generous godparents – can contribute up to the annual limit. It automatically converts to an adult ISA at age 18.
How much can we put in every year?
The maximum is £4,080 for the 2016/17 tax year.
What do Junior ISAs invest in?
Junior ISAs are just as flexible as a normal ISA. Investors can invest in range of underlying investments, including cash, the stock market and government bonds. The temptation – because it is for your children and they are precious little things (when they are not being ‘orrible) – is to be very risk averse, keeping it all in cash. However, we might suggest that you can afford to take a little more risk with children’s savings because you can have 15 years or more to ride out the highs and lows of markets. Our children’s JISAs are in pretty spicy things like Asian shares – pretty hard core stuff but we have a very long time frame to play with.
What are the benefits?
They have all the benefits of a normal ISA in that any growth or income in the underlying investments is basically tax-free. With normal investments outside the protective ISA box, any income of over £100 a year from money you give them is taxed at the parents’ marginal rate (to stop parents dodging tax by giving money to their children). This doesn’t happen with ISAs so you can build up savings without incurring a tax bill.
So – if you give your children money and it makes more than £100 a year before tax in interest (or £200 if both parents give money), ALL of this income will be taxed as if it were your own.
That’s if it comes from you. If your kids are budding entrepreneurs and have a business selling drawings/conkers/photos/cakes, then they can earn up to £10,600 a year before paying tax. Just remind them who gave them those creative genes when it’s Christmas time!
Who might it suit?
Junior Isas can be a great way to give your little darlings a nest egg to buy a house, car, fund their education etc. However, you need to be aware that you can’t control what they do with it. All the money you put in is locked away until your child’s 18th birthday. At that point, it becomes their money and they are free to do whatever they like with it. If you’ve got a responsible one, you might be lucky and they’ll use it for their university fees; if you haven’t, maybe don’t tell them it’s there (did we just say that?).
On their 18th birthday, the Junior ISA will roll over into a normal adult ISA.
Where can you get one?
For cash ISAs, you can consult the best buy tables: Savings Champion, for example gives you an idea on the best fixed and flexible rate cash Junior ISAs. Coventry, for example, is currently paying 1.1%.
If you are interested in a stocks and shares ISA – and remember that over a 10 year time frame, we are told that shares are 90% more likely to do better than cash – then here’s the Boring Money Menu.
JISA S&S - Best Buys
If you're confident
- Charles Stanley
- Hargreaves Lansdown
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