What is a Junior ISA?
- Put simply, Junior ISAs are long-term, tax-free savings accounts for children.
- There are two types: cash Junior ISAs and stocks and shares Junior ISAs.
- In both cases, you don’t have to pay tax, either on the interest earned or dividends received.
How much can I pay into my child’s ISA?
After years of being around £4,000, the Junior ISA allowance more than doubled in 2020, bringing it up to £9,000 per year.
This tax-free limit applies to both cash and stocks and shares ISAs, allowing you to split the allowance however you choose across the two.
*£9,000 is the current Junior ISA allowance for the tax year 2021–2022 and may be subject to change after that period.
Unlike adult ISAs, although the £9,000 allowance renews annually, you cannot open a new ISA for your child each year.
They may only hold ONE cash Junior ISA and ONE stocks and shares Junior ISA at any time.
However, if, for instance, the interest rate on their existing cash Junior ISA is no longer the best available, you can transfer the funds from that ISA to another and take advantage of better rates in the market.
How is a Junior ISA different from a Child Trust Fund?
If your child was born between 1st September 2002 and 2nd January 2011 then it’s likely they have a Child Trust Fund (CTF).
These tax-free savings/investment accounts have now been entirely replaced by Junior ISAs, but they were part of a government drive to encourage more parents to save for their children.
Children received free cash vouchers as opening payments for the funds (and again at the age of 7) and then parents and family members could continue to make contributions.
When Junior ISAs were brought in, despite the boost of a lump sum from the government, CTFs no longer looked like an appealing alternative to those who already had one. That’s largely because fund charges remained high, meaning the return wasn’t as good as that seen with Junior ISAs.
If your child has a CTF, you won't be able to open a Junior ISA for them straight away – they can't hold both at the same time.
However you will be able to transfer the investment to a Junior ISA and take advantage of a greater choice of providers and the more digital experience.
- If you’ve lost track of your child’s CTF, you can find it by providing certain details on the government website.
Who can open a Junior ISA?
For children under 16, the JISA can only be opened by a parent or legal guardian. You must be living in the UK or working as a ‘servant of the Crown’ – in the armed forces, diplomatic service or overseas civil service.
Once your child turns 16, they can – if they wish – take control of the management of their account or open their own Junior ISA.
(From this age they can also open a regular adult ISA, when they’re on this threshold of adulthood they can hold both types and use both the £9k Junior ISA allowance and the £20k adult ISA allowance!!)
This is an excellent chance to encourage your child to get to grips with the idea of saving for their future. Helping them with financial education will give them a great head start when they come to be in charge of all their own finances.
This moment arrives when your child turns 18. At this point, they are totally in control of their JISAs – which automatically convert to adult ISAs – and can do whatever they like with the money.
Hopefully, having been involved in the process will encourage them to think carefully about what they spend it on! Or maybe they'll even continue investing the majority of it for the future.
Who can pay into a Junior ISA?
The short answer is anyone! Setting up a Junior ISA is a brilliant way of creating a pot that everyone can contribute to.
It's important to check that the provider you're considering does offer this option. It's possible within the wider JISA rules, but some don't allow it.
At Nosso, we absolutely offer (and encourage!) this option as we think it's important to make investing on behalf of children as easy as possible, for whoever wants to be involved.
Because the JISA is technically your child’s, all payments immediately count towards their own tax-free allowances, without any of the complications of passing through your accounts first.
This means that, as long as you make sure the total value of gifts in a year stays under the £9,000 limit, grandparents, godparents, aunts, uncles and anyone else who feels like it can contribute to your child’s financial future.
Whose money is it?
When you open a Junior ISA for your child – whether it’s a cash ISA or stocks and shares ISA – you are doing so in their name. Yes, you have control over it, at least until they’re 16, but all money that is invested is legally theirs.
This means that apart from under exceptional circumstances, you can't withdraw any of the money that's paid in. It also means that when they turn 18, you have no direct say in what happens to that money.
The gift of financial freedom
There are a few rules around making gifts and payments to others and it’s worth getting familiar with them, or making sure your family members are if they're planning on making payments into your child’s Junior ISA.
At Nosso, we’ve made it simple for anyone to contribute directly to your child’s financial future. We’ve also personalised the process to turn a straightforward transfer of funds into more of a gift experience; family members can leave a note and a picture with each contribution they make. These messages are then all stored in the app to create a keepsake for your child when they eventually receive the money at 18.
When investing, your capital is at risk and may be going up as well as down which means you may be left with less than your initial investment. This article should not be read as personal financial advice. Individual investors should make their own decisions or seek independent advice. Past performance isn’t an indicator of future performance. The exact tax treatment depends on your individual circumstances and may be subject to changes in the future.