Junior ISA Allowance
The Junior ISA limit for the 2017/18 tax year is £4,128. Junior ISAs were launched in 2011 and provide a tax-efficient way to save money for your children’s future.
If you already have a Child Trust Fund then you will be unable to open a Junior ISA. However, you can transfer the Trust Fund in to an ISA, just check with your provider for their transfer rules and process.
Transfers can be made between Junior Cash ISAs and Junior Stocks and Shares ISAs, and between ISA providers, but only one Junior Cash ISA and one Junior Stocks and Shares ISA can be held per child at a time.
You are able to split the allowance between a Junior Cash ISA, a Junior Stocks and Shares ISA or a combination of the two.
Junior Cash ISA - Junior cash ISAs work in a similar way to a normal savings account, except that you don’t pay UK Income Tax on the interest your money earns.
Junior Investment ISA - Junior investment ISAs can offer a potentially higher rate of return on the money as savings are invested in the stock market. And you also won’t pay UK Income Tax or Capital Gains Tax on any of the returns.
However, it’s important to consider that the value of investments and so, the amount in the Junior ISA could go down as well as up.
Rules of Junior ISAs
Junior ISAs are very similar to adult ISAs. The accounts are a tax-efficient wrapper that allow parents, grandparents, friends or guardians to invest up to the maximum allowance a year on a child's behalf, in either cash account or investment funds.
- Savings and investments cannot be cashed in before the child reaches 18 when they will assume full control
- There are both Junior Cash ISAs and Junior Stocks & Shares ISAs available
- Like adult ISAs, you can divide the Junior ISA allowance between cash and investments in whatever proportion you wish
- Children who already have a Child Trust Fund do not qualify for a junior ISA. However, you are able to transfer the trust fund to an ISA
- A young person aged 16 can open their own Junior ISA. They can also open a regular cash ISA as well
- An adult with parental responsibility may open a junior ISA on behalf of someone aged under 16 years old
- Anyone can contribute towards the Junior ISA once it is opened, including grandparents, family members and friends
- All money contributed into a junior ISA is considered a gift and cannot be subsequently returned to the giver if they change their mind
- No withdrawals can be made from the account, until the child turns 18 at which point the account rolls over into a normal type of ISA, in their name, and they can do with it whatever they wish
What are the Advantages of Junior ISAs?
Junior ISAs provide parents, friends and family members with a convenient, tax-efficient way to save for a child's future
- The money saved in a junior ISA stays tax-free once the child reaches the age of 18
- The money is locked away until the child turns 18, which can stop children from being tempted into spending it on unimportant items
- If you want to save an annual amount for your child that generates over £100 in yearly interest, a junior ISA ensures that this interest isn't taxed
What are the Disadvantages of Junior ISAs?
- Once your child reaches 18, the money is theirs to spend or save as they wish. If you've got a specific savings goal in mind for your child - for example, a mortgage deposit - you might be better off setting up a savings account in your own name so that you can ensure the money is used for the purpose you originally intended
- The ISA isn’t always the best option in terms of savings due to dwindling interest rates. Children are also entitled to the Personal Savings Allowance so check if the ISA is the best option for you. Savings Accounts or even Current Accounts could offer better options and higher interest rates
What should I look for?
There are some important things to search for when trying to find the best ISA option for you. Check our tables for latest interest rates and information.
1)Find the Highest Interest Rate – While this seems like an obvious point, many people allow their savings to languish in accounts which aren’t paying a great deal of interest. This is particularly true of accounts that once had attractive opening incentives but are now not working as hard as they should be. When you’re opening an account make sure you shop around to get the best deal possible. Use our comparison tables for latest interest rates and options.
2)Variable or Fixed Rate – Most Junior ISAs are available at variable rates of interest. Normal savings accounts tend to offer a fixed rate account if you tie up your money. The advantage of this is that fixed rate accounts tend to offer a higher rate of interest in exchange for tying up your money. You would then lose the tax-free wrapper, however. Some accounts which offer a fixed rate Junior ISA include: Halifax, Santander, TSB, Nationwide. See our charts for more details.
3)Cash ISA or Investment ISA – This mostly depends on whether you’re willing to take a risk with your money. Investing is always carries some form of risk but the returns are generally much higher. Many Investment ISAs now manage the funds for you and invest to a level of risk you’re comfortable with, so it’s definitely a viable option for your money. A Cash ISA means you will not lose any money and will see some gains but will likely be at a much lower rate. You can also split your money between one of each of these type of ISA.