Investing for Children - The Junior ISA
There was welcome news for young savers in the March Budget with the government announcing the Junior ISA (JISA) allowance was to be more than doubled, from £4,368 to £9,000 from 6 April 2020.
JISA and CTFs both benefit
JISAs replaced Child Trust Funds (CTF) in 2011, but those who still
hold CTF will continue to benefit from the increased allowance. Both JISA and CTF are a tax efficient way to build up savings for a child. It is not possible to have both a JISA and a CTF.
Savings for children
A junior ISA can be opened for any child under 18 living in the UK and the money can be held in cash and/or invested in stocks and shares. Once the person who has parental responsibility for a child has opened the account, anyone can contribute to it. The child can manage the account from age 16 and at age 18 they can withdraw the money if they want, when the account otherwise becomes a normal cash or stocks and shares Individual Savings Account (ISA). Alternatively, they can keep saving into it as a standard ISA.
The tax benefits for JISAs and CTFs are the same as for an adult ISA. So, there is no Capital Gains Tax and no tax on income.
Investing for their future
Following the Budget, it was reported: 'By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.
Junior ISAs and Child Trust Funds are tax-advantaged accounts for children, designed to encourage a long-term savings habit.' Two principles which apply to many aspects of financial planning are particularly relevant when planning for your child's financial future:
- The longer the timescale, the more scope there is for your investments to grow
- Taking expert advice can help you avoid potential pitfalls
The potential of a JISA
It is estimated that if £9,000 was invested every year from birth and assuming a 2% annual return, which is obviously by no means guaranteed, the JISA would be worth around £194,000 at age 18. Saving such a large amount is obviously out of the question for most people, but whatever amount you can afford to save for your child's future, a JISA is an ideal choice.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.