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Guide to Isas
Your IndustryJun 2 2016

How Jisas can be used to help bolster savings habits

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How Jisas can be used to help bolster savings habits

How can a Jisa help to build up savings for your clients’ children or grandchildren?

The Junior Isa replaced the old Child Trust Funds in 2011 and since then they have had a slow but steady take-up among clients wanting to put money aside tax-efficiently for their children to use when they hit 18.

Approximately 510,000 Jisa accounts were subscribed to in the third full financial year of their existence, up from 432,000 in 2013-2014, figures from the Office for National Statistics have shown.

Key points:

■ Allows tax-free savings for child or grandchild.

■ Automatically converts to an adult Isa at 18.

■ Can be both stocks and shares and cash.

■ Can be used in conjunction with annual gift allowance for inheritance tax purposes.

■ The child cannot access the Isa even though the funds belong to them, until they are 18. Once they reach 18 they can access the Isa without parental or guardian’s permission.

Tom Williams, chartered financial planner for WH Ireland, stated: “Various types of Isas can all be valuable tools in an individual client’s overall financial plan, with each type having their own individual merits and prospective uses.”

Money put aside to pay for university fees or mortgage deposits could be squandered on foreign holidays and cars Patrick Connolly

But while all the other Isas mentioned in this guide count towards the annual Isa limit, the Junior Isa will not count towards the £15,240 annual limit.

Mr Williams explained why this is a benefit: “The Junior Isa is the only one which will not use up an individual’s main Isa allowance given to the individual child.

“This will be a key consideration for an individual wishing to save for a child’s future, and who is happy to give up access to the funds to ensure there are no tax consequences on themselves for investing on behalf of the child.”

Daniel Harrison, senior partner at True Potential, believes the Jisa is a “great way to build a tax free savings pot for your child, which could result in them having funds for a deposit on a house or to pay their university tuition fees”.

Table: Junior Isa subscription limits

Tax year starting 6th AprilOverall Subscription LimitCash Junior Isa Limit
2011-12£3,600£3,600
2012-13£3,600£3,600
2013-14£3,720£3,720
2014-15£3,840/£4,000£3,840/£4,000
2015-16£4,080£4,080
2016-17£4,080£4,080

Source: HM Revenue & Customs and ONS

These can be very popular for some clients and some advisers even use them for their own children, including Patrick Connolly, certified financial planner for Chase de Vere.

He said: “They combine tax-efficiency, simplicity, a wide choice of investment options and an annual contribution limit of £4,080.

“They are the ideal choice for many of those looking to save on behalf of their children and this is how I save for my own child.”

However, he did present a caveat: “The biggest danger is at the age of 18, the child can get the money and spend it how they like. This could mean money put aside to pay for university fees or mortgage deposits could be squandered on foreign holidays and fast cars,” commented Mr Connolly.

“The risk could mean many parents won’t want to invest too much into Junior Isas and will consider other options such as using their own Isa allowances, looking at trust arrangements or holding funds in their own name, even if this means they could face an extra tax liability.”

Also, according to Mr Harrison: “The annual allowance for a Jisa is set much lower than the adult Isa limit, at just £4,080 for the current tax year. No withdrawals are permitted until the child reaches 18 years of age. Some may consider this restriction to be a disadvantage.”