The Junior ISA– a tax efficient way to save for your children’s future

The subject of JISA’s has been touched upon in our recent article relating to ISA’s and how best to invest for tax efficiency. However, the subject is more in depth and further key points and links to useful information are covered here.

Replacing the Child Trust Fund (CTF)

The JISA was introduced in 2011 to replace the CTF, which was available for children born between August 2002 and January 2011. Children born outside of these dates are not able to invest in a CTF and similarly children born within these dates are not able to invest in a JISA, at present. Government measures have been taken however to allow the transfer of funds from a CTF to a JISA, to eventually eliminate the CTF all together. This option to transfer has been announced to be available from April 2015.

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The current limits for investment into a JISA

For the 2014/15 tax-year, the amount able to invest in a Junior ISA is £3,840, increasing to £4,000 from July 2014, as announced in the 2014 Budget. This means those who have already invested in this tax year to the previous limit of £3,840, can invest a further £160 between now and 5 April 2015. Read our related article on the 2014 Budget.

What types of JISA accounts are available?

The two types of JISA are:
  1. Cash ISA – where the interest earned is tax free
  2. Stocks and Shares ISA – where the returns are broadly tax free
Separate accounts are required for each type of JISA but the maximum £4,000 allowance can be split between accounts in whatever proportion is considered appropriate and transfers can be made between accounts throughout the year if required. Just don’t exceed the £4,000 limit over both accounts and everything is good! It is worth noting too that each child can only have one of each type of JISA accounts per tax year. If moving between JISA providers, the funds will be transferred and the old accounts closed.

How does the JISA work, practically?

  • Unlike the CTF, the government is not contributing any money; the mechanism is purely for tax efficient savings.
  • The funds can only be drawn on the child’s 18th birthday when the funds then belong to them.
  • Parents are in charge of the JISA accounts until the child is 16, after which the child can take over management of the JISA if they choose – until then the parent is responsible for paying in the money, selecting providers, choosing the type of ISA investment and any transfers.
  • When the child turns 18, the JISA becomes an NISA – Read our related article on “N”ew ISA’s where the limits increase significantly for annual investment.

The flip side of the coin – are JISA’s suitable for everyone?

OK, so JISA’s are broadly tax-free and if paid into year on year can result in a tidy sum when your children reach 18. Many factors though in addition to the above need to be taken into account, a couple that spring to mind are: 1) Will your children spend the money wisely when they reach 18? Are you happy letting them have this decision? 2) Do you have debts that would benefit from being paid before savings are made?

A specialist Independent Financial Planner

A Financial Advisor will be able to help you make the right decision for you and your family taking into account your personal situation.

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