No matter how much wealth you have in your personal accounts and investments, for those with children, planning for their future is a key concern, and ensuring they are already financially secure when they come of age is one of the greatest gifts you can give them.
When you’re planning to provide a solid financial future for your children, it’s easy to feel overwhelmed by the number of choices available. So, how can you make sure that you’re doing what’s best for your offspring while also making the most of some of the tax-efficient benefits that come with opening an ISA account?
These are some of the most commonly asked questions about setting up a Junior ISA account – as well as the answers you need to know to make the most of it.
What is a Junior ISA?
A Junior ISA is an account which allows a parent or legal guardian to begin preparing for a child’s future by placing in funds that will ideally grow over time. It’s a tax-savvy method of financially supporting a child when they turn 18 and become a legal adult, and one they are certain to thank you for when they come of age.
Junior ISAs come in two forms – a Junior Cash ISA, which works much like a standard savings account, and a Junior Stocks and Shares ISA (which invests your money into the stock markets instead). The second option obviously comes with greater risk attached, but it also offers an increased potential for growth over time, so it’s worth considering both before going ahead and opening an account for your child.
Can I open a Junior ISA for someone who isn’t my child?
To open a Junior ISA, most banks will insist that you’re legally responsible for the child in question. But that doesn’t mean you can’t help to contribute to an ISA for another child over the years. In fact, anyone can put money into a Junior ISA, even if they didn’t open the account themselves, so if you’re looking to support a niece, nephew or another child you’d like to ensure they have some financial security then this is entirely possible.
What are the annual money limits of a Junior ISA?
The annual deposit limit for a Junior ISA is £9,000 per tax year. And as long as you stay within this limit, you’ll pay no tax on the annual amount or any interest it gains. That money limit includes contributions from other people, so be sure to keep on top of how much money is going into the ISA from others.
It might not sound like much, but when combined with some other methods of securing your child’s future, even a relatively small amount like this will help, and because it’s tax free, it’s one of the best ways currently available to gift them money without having to pay extra or lose any of your deposits for the privilege.
Can I open a Junior Cash ISA and a Junior Stocks and Shares ISA?
The good news is that each child is entitled to have both types of account opened in their name. There’s no rule that says you cannot have both, so it’s worth considering – however, there is a downside. The combined amount within both accounts will still need to be within the maximum annual amount of £9,000 and cannot exceed this – so if you were hoping for an opportunity to stash away double the amount of tax-free funds for them, then sadly, this isn’t it.
Will opening a Junior ISA for a child impact my own ISA allowance?
Fortunately, opening a Junior ISA will have no effect on the ISA allowance of the person who opened the account. So, if you’re eager to open an ISA for your child without impacting upon your own financial plans, then there’s no need to worry about this. Similarly, your own ISA allowance won’t impact upon the amount you can put in your child’s Junior ISA.
Do I own the ISA that I open for a child?
Yes and no. You are responsible for the Junior ISA, but once a child turns 18, they will be legally classed as an adult. At this point, the ISA will be a standard adult ISA that’s in their name, and they’ll have full control over what they do with the funds within it.
Being aware of what a Junior ISA can offer to a child is crucial when planning for their future, and an opportunity you won’t want to miss out on. So, if you’ve yet to open an account on their behalf, there’s no time like the present to do so and help to set them up for the best possible future.
