In the 2022 Autumn Budget, it was revealed that the Junior ISA (JISA) spending limits would remain at £9,000 for the 2023/2024 tax year. The JISA limit was last changed in early 2020, when it was doubled from £4,500 to its current level.
JISA and CTFs both benefit
JISAs replaced Child Trust Funds (CTF) in 2011, but those who still hold CTF will continue to benefit from the increased allowance. Both JISA and CTF are a tax efficient way to build up savings for a child. It is not possible to have both a JISA and a CTF.
Savings for children
A junior ISA can be opened for any child under 18 living in the UK and the money can be held in cash and/or invested in stocks and shares. Once the person who has parental responsibility for a child has opened the account, anyone can contribute to it. The child can manage the account from age 16 and at age 18 they can withdraw the money if they want, when the account otherwise becomes a normal cash or stocks and shares Individual Savings Account (ISA). Alternatively, they can keep saving into it as a standard ISA.
The tax benefits for JISAs and CTFs are the same as for an adult ISA. So, there is no Capital Gains Tax and no tax on income.
Investing for their future
Following the Budget, it was reported: ‘By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.
Junior ISAs and Child Trust Funds are tax-advantaged accounts for children, designed to encourage a long-term savings habit.’
Two principles which apply to many aspects of financial planning are particularly relevant when planning for your child’s financial future:
- The longer the timescale, the more scope there is for your investments to grow
- Taking expert advice can help you avoid potential pitfalls
The potential of a JISA
It is estimated that if £9,000 was invested every year from birth and assuming a net 2% return, which is obviously by no means guaranteed, the JISA would be worth around £194,000 at age 18. Saving such a large amount is obviously out of the question for most people, but whatever amount you can afford to save for your child’s future, a JISA can be a great choice.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Tax concessions are not guaranteed and may change in the future. Tax free means the investor pays no tax.
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Key takeaways:
- The JISA allowance will remain at £9,000 for the 2023/2024 tax year.
- Junior ISAs are long-term, tax-free savings accounts for children.
- JISAs replaced Child Trust Funds (CTFs) in 2011.
- Both benefit from the increased allowance of £9,000 per tax year.
- JISAs can be opened for any child under 18 living in the UK.
- Once the person who has parental responsibility for a child has opened the account, anyone can contribute to it.
- The child can manage the account from age 16 and at age 18 they can withdraw the money.
- There is no Capital Gains Tax and no tax on income.
- The ISA allowance will remain at £20,000 for 2023-2024 tax year.
- HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
- An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Tax concessions are not guaranteed and may change in the future. Tax free means the investor pays no tax.
The Junior Individual Savings Account (ISA) was introduced in 2011, 12 years after the launch of the original ISA in 1999, which recently celebrated its 18th birthday.
In a nutshell, the Junior ISA is a long-term, tax-free savings account for children. It effectively replaced the Child Trust Fund and aims to enable parents to save a tax-efficient nest egg for their children.
There are two types of Junior ISA and your child can have one or both types:
- A cash Junior ISA, where you won’t pay tax on interest on the cash you save.
- A stocks and shares Junior ISA, where your cash is invested and you won’t pay tax on any capital growth or dividends you receive.
Managing the money
Only parents, or guardians with parental responsibility, can open a Junior ISA for under 16s, but the money belongs to the child. Until the child turns 16, the parent can manage the account if they want to make changes. For example, they could change the account from a cash to a stocks and shares Junior ISA, or change the account provider.
The child takes over control of the account when they turn 16 and they can access their money from age 18 (when the ISA automatically loses its ‘Junior’ status).
Children aged 16 or older can open their own Junior ISA, as well as an adult cash ISA (with maximum contribution limits of £4,128 and £20,000 respectively, for the 2017-18 tax year).
Paying into a Junior ISA
Anyone can pay into a Junior ISA, but the total amount paid in can’t exceed £4,128 in the 2017/18 tax year and £4,260 for 2018/19. If you go over this limit, the excess is held in a savings account in trust for the child and cannot be returned.
During the 2017/18 tax if you have paid £2,000 into a child’s Cash Junior ISA you can only pay £2,128 into their stocks and shares Junior ISA. You can make contributions into a Junior ISA until the child’s 18th birthday.
Contains public sector information licensed under the Open Government Licence v3.0.
The tax efficiency of ISAs is based on current rules.
The current tax situation may not be maintained. The benefit of the tax treatment depends on the individual circumstances. The value of your stocks and shares ISA and any income from it may fall as well as rise. You may not get back the amount you originally invested.
If you’d like more information on Junior ISAs, please get in touch.