What are Junior Stocks and Shares ISAs?
Junior Stocks and Shares ISAs are tax-free investment accounts for children opened and managed by a parent or legal guardian.
Stocks and Shares JISAs invest in the stock market through funds, shares or other investment products.
They have the potential for excellent long-term growth returns in comparison to Junior Cash ISAs due to their access to the stock market. This is great for a child’s savings account as your money is usually invested for a long time compared to other accounts.
As they are ISAs, they are also the most tax-efficient way of saving for your child’s future.
How do Junior Stocks and Shares ISAs work?
Here is a list of the key features and rules and restrictions for the accounts to explain how they work:
- JISAs must be opened by a parent or legal guardian
- Once open, grandparents, friends or anybody else can add money to a child’s JISA
- Only the parent or legal guardian who created the account can control the investments
- You can invest a maximum of £9,000 for each child in the 2021/22 tax year
- Children can only have one Stocks and Shares JISA account open, but they can have both a Cash JISA and a Stocks and Shares JISA open at once
- Your child never has to pay income tax, dividend tax or capital gains tax (CGT) on their JISA investments
- No withdrawals are permitted until your child is 18
- At age 18, the JISA account transfers automatically into a standard ISA account and withdrawals are permitted
What do Junior Stocks and Shares ISAs invest in?
The investment options in a children’s Stocks and Shares ISA are very broad. You can invest in shares of companies directly, or in managed funds operating in a particular sector.
You can even invest in ready-made JISA portfolios controlled by investment professionals if you are willing to pay higher ongoing charges.
Here is a breakdown of the most common types of Junior Shares ISA investments:
Unit Trusts and OEICs (Open Ended Investment Companies)
These are managed funds, and work by grouping investors' money together and spreading it across multiple companies within a specific industry or sector.
For example, the Jupiter India Class X - Accumulation (GBP) Fund invests in around 65 Indian companies picked and monitored by a qualified fund manager at Jupiter Asset Management.
‘Accumulation’ means that dividends are automatically reinvested within the fund, whereas an ‘Income’ fund pays them out to investors.
Investment Trusts are also a form of managed fund but are structured as a company and listed on a live stock exchange. They pool your money together with other investors and purchase shares in companies they believe will perform well.
Shares represent a slice of a single company listed on a stock exchange. You can hold shares in multiple companies within a children’s Stocks and Shares ISA. These can range from large FTSE 100 companies like Coca-Cola, to smaller companies that you think have the potential to grow.
Exchange Traded Funds (ETFs)
ETFs are tracker funds that replicate the performance of a particular stock index, such as the FTSE 100.
ETFs do not require any expertise or investment strategy, so the charges are considerably lower. You pick a sector or market to track, and the ETF replicates the exact holdings of that market to mirror its performance.
If you are not comfortable picking shares or funds yourself you can buy a ready-made portfolio in your Junior Stocks and Shares ISA that’s monitored by a team of investment professionals.
Ready-made portfolios are graded by risk level, and they are monitored daily by the portfolio managers.
However, you pay higher charges for these portfolios due to their high running costs.
Is the performance of Junior Stocks and Shares ISAs worth it?
The performance of your Stocks and Shares Junior ISA depends on the investments you choose to hold within it.
In general, stock markets go up over the long term. However, they will always experience periods of volatility over the short term and could even crash in the wake of significant global events.
Here are some top tips on getting the most out of your Stocks and Shares JISA investments:
1. Diversify your portfolio
Do not put all your eggs in one basket. Investing in one single company is risky, no matter how confident you are in its potential. You never truly know what is going on behind the scenes or in the wider industry they operate in.
Investing in multiple funds, shares and ETFs covering different markets and sectors means your portfolio is less likely to lose significant value if one of your investments performs badly.
2. Invest for the long term
Investing for your child is a great way to get the most out of stock market returns as you will probably invest your money for a long time.
Five to ten plus years is a good amount of time for stock market investments to grow. They will go through periods of losing value – all investments do – but they have a good chance of steadily growing over many years.
3. Keep things simple
When you have decided on the makeup of your investment portfolio, try not to change it too much.
Chopping and changing your investments regularly could incur dealing fees from your JISA provider that outweigh the better performance you get from changing your investments.
That’s not to say you can’t make any changes at all, but have faith in the long-term performance of your investments and don’t panic if they go through short term losses.
It is almost impossible to predict very short-term price fluctuations – even professionals get it wrong – so focus on your long-term investment goals.
Which is the best Junior Stocks and Shares ISA provider?
If you are picking your Stocks and Shares JISA investments yourself, then there are a range of JISA providers to choose from.
Most of these providers offer the same funds and shares on their platform as they are universal to the stock market, so choosing the best JISA provider comes down to other key factors:
- Do they offer the investments you want to buy?
- What is their Annual Management Charge?
- What other ad hoc charges apply, e.g., dealing fees?
- How good are their customer service ratings?
- What investment research and insight do they provide?
- Is their app and online platform easy to use and highly rated?
Some JISA platforms charge higher fees than others, but it’s important to consider why this might be.
Are they investing in their customer service teams? Are they investing in developing and updating their platforms and providing original investment research?
Perhaps you don’t care about the above factors and just want the cheapest Stocks and Shares JISA available. Try to consider what your investment goals and needs are, and pick the best Junior Stocks and Shares ISA provider for you.
Ready-made portfolio JISAs
If you want your money controlled by portfolio managers, then you probably aren’t too concerned with investment research and dealing fees.
If you’re choosing a ready-made portfolio JISA, consider the following instead:
- Are the investment managers trusted and qualified?
- What are the Annual Management Charges?
- Do they offer a risk profile to suit you?
- Is the portfolio rebalanced to keep its risk level accurate?
Are Junior Stocks and Shares ISAs a good idea?
Stocks and Shares JISAs make a lot of sense as a product as long as you are happy with the account restrictions:
- You can’t withdraw money until your child is 18
- Once they are 18, they control their ISA and can withdraw as much as they want without your permission
- You could lose money on your investments, especially in the short term
- You can’t open them for a grandchild – you must be the parent or legal guardian, although you can still make contributions to a JISA once it is open
- You can only save up to £9,000 per tax year
Can a Grandparent open a Junior Stocks and Share ISA?
If you’re a grandparent, you may wish to consider some alternatives to Junior Stocks and Shares ISAs.
A Stocks and Shares JISA cannot be opened or controlled by a grandparent. However, you can contribute to your grandchild’s existing JISA if you know their account reference number.
This means that you can add money to their Junior ISA, but you can’t decide where it is invested unless you have a personal agreement with the parent who controls the account.
You also can’t control when your grandchild withdraws their money from a Stocks and Shares JISA once they are over 18.
What are some alternatives for Junior Stocks and Shares ISAs?
Another child savings option is to open a General Investment Account (GIA) for your child or grandchild and put it into a Bare Trust. Ensuring the child is the sole beneficiary of the Bare Trust means that they are entitled to the investments but only when you see fit.
They can be opened and controlled by any relative, including grandparents.
You can hold the funds back for a specific reason for your child, like a house purchase or paying for education fees.
There is also no limit on how much you invest compared to the £9,000 per year with a Junior Stocks and Shares ISA.
However, there are no tax-benefits with a Bare Trust.
The trust is liable for tax so the beneficiary needs to declare income, dividends and capital gains on their tax return once they turn 18.
Junior SIPPs also have to be opened by a parent or legal guardian. As with children's ISAs, grandparents can contribute to a Junior SIPP but cannot open or control the account.
- 20% government tax relief for contributions (up to £3,600 gross per year for children who do not earn an income)
- Tax-free dividends and capital gains
- Can invest in Stocks and Shares
- No withdraws until legal retirement age (at least age 57 from 2028)
- Withdrawals are taxable after the first 25% tax-free cash