The five most useful things to know about Junior Isas
JUNIOR Isas were launched in November 2011. Any child born before September 2002, who does not already have a Child Trust Fund (CTF), can be signed up, as well as all children born after 3 January 2011. The Junior Isa scheme supplants the CTF (though the government does not contribute to the new scheme), and the maximum contribution permissible for anyone with a CTF has been bumped from £1,200 to £3,600 to bring it in line with the Junior Isa.
A GREAT WAY TO SAVE
The Junior Isa allows a child’s parents, relatives and family friends to save cash, stocks and shares for when the child turns 18, at which point the Junior Isa will be converted into an adult Isa.
You can invest up to £3,600 per annum, which over the course of 18 years can add up to a fair sum. Investing the maximum allowance annually with an average return of 5 per cent per annum could produce a portfolio of over £100,000 at age 18.
THEY ARE TAX EFFICIENT
As was the case with the CTF, Junior Isas are currently free of income and capital gains tax. Unlike the CTF, the Junior Isa will receive no government contribution. However, it does maintain the tax-free wrapper element that made the CTF so attractive.
MITIGATE INHERITANCE DUTIES
Contributions can be used to reduce parent’s or grandparent’s estates for inheritance tax (IHT). Individuals have an annual exemption, which can be given away each year, which is exempt from IHT. This is currently £3,000 per tax year.
ENCOURAGE FINANCIAL KNOWLEDGE
They are a good way to encourage children to get involved in personal finance – since they are going to become responsible for their accounts at 18 it is a good idea to get them involved in the decisions you are making for them.
MAJOR RESPONSIBILITIES
Despite the huge advantages offered by making use of the Junior Isa scheme, parents should be aware that your child will have full access to the contents of the fund at 18. Once in the Junior Isa, funds are unconditionally the property of the child and can’t be revoked for bad behaviour.
It is also useful to note that between the ages of 16 and 18, the child is also eligible to invest in an adult Isa.