Investment ISA for Grandchildren
One of the best bits of later life for many Brits is the joy of becoming grandparents: the joy of doting on tiny people, without the responsibility of being a full-time parent. Many grandparents look for ways to financially invest in the future of their beloved grandchildren - so we've broken down how to do this in a tax-efficient way using an Investment ISA wrapper.
For those looking to invest in the future of their grandchildren, one of the best ways to do this is by a Junior ISA (also known as a JISA), which allows you to put money aside year on year throughout their life, offering good returns which are kept safe from the tax man.
What is a JISA?
Junior ISAs are an initiative by the British Government which aims to help parents (or guardians) to put money aside and invest in their children’s future.
Because they are ISAs, JISAs offer tax-free savings and investments because they are kept in a tax-free ISA wrapper. This means that any returns that you gain from these investments are not subject to capital gains tax.
What are the rules?
- Each eligible child is allowed to have one cash ISA and one stocks and share ISA at any time.
- Transfers are permitted between cash and stocks and shares junior ISAs, or to another junior ISA provider.
- Children who were born between 1st September 2002 and 3rd January 2011 will already have a Child Trust Fund, and are therefore not eligible for a junior ISA.
Can I open one for my grandchild?
A JISA can be opened by anyone with parental responsibility – so if you have guardianship or are a primary caregiver for your grandchild, then you are permitted to open a JISA.
Otherwise, it needs to be opened by a parent or guardian.
However, while it can only be opened by a parent or guardian, any friend or family member is able to put money into the account, as long as the total amount which is put into the JISA is under the yearly amount allowed by Government legislation.
So, how much can I put in for them each year?
Each year the government releases the new limits on ISA allowances for that tax year; they will either change the allowance for the previous year or keep it the same.
For this current tax year (2020/2021), the government vastly increased the JISA allowance, meaning in total you can put up to £9000 per tax year into a JISA account for a child – this is a big jump from the previous years’ £4000 allowance, so if you’re looking to put money aside for your child, now would be the time to do this.
When do they get access – and what can they use it for?
The ISA account will remain under the management of the child’s parent or guardian until they turn 16 – at which point the child is able to manage the money, but cannot make a withdrawal until they turn 18.
Most grandparents, parents or guardians open these accounts with the hope that the money they squirrel away will help their child to improve their start in life – it can be used for a deposit on a first home, a car, university fees etc. However it’s important to stress that once the child turns 18 and has access to the funds, the way in which this money is spent is the choice of the child. Those who deposit money over the course of the child’s lifetime cannot stipulate what the money is spent on – so if you have a particular wish for what you would like your child or children to use the funds for, it’s important to make your wishes known but also acknowledge that they do not have to be honoured.
Where can I get one?
Many providers offer JISA accounts at varying rates.
You’ll see better returns on an Investment JISA than a Cash ISA, so if you’re looking at long term saving for your child’s future, that is the best course of action.
If you want to have a look at what different providers offer in this arena, have a look at our Junior ISA rates page where you can review and compare a variety of the top providers.