For clients wanting to invest for their children’s future in something more adventurous than a child savings account, there are three main options: a Junior Isa, a Junior pension or a bare trust investment account.
The purpose of these accounts varies significantly, and there are considerable differences in how they can be accessed, tax treatment, limits on investments and how the accounts are managed.
Jisas are often the first option that springs to mind when we talk about investing for children. Like all Isas, Jisas benefit from tax-free growth, with no income or capital gains tax to be paid.
This includes when the account is funded by parents, and, unlike some other accounts, even when the income for the year exceeds £100.
Children can have a cash Jisa and a stocks and shares Jisa. It is possible to hold one of each type, and transfers can be made freely from one to the other.
However, unlike adult Isas it is not possible to open a new account of the same type each year and leave the old one open.
If a stocks and shares Jisa is held and you want to pay into one with a different provider then the existing Jisa must be transferred to them first.
Accounts can be opened by the parent or legal guardian of any child resident in the UK aged under 18.
- There are several ways parents and grandparents can save for children
- A Jisa can mean regular saving and provide money for a future house deposit or university fees
- A child pension is one option, but this is better for wealthy parents
We are frequently asked whether grandparents can open accounts for their grandchildren, and the short answer is no.
Only someone with legal responsibility can be the “registered contact” – the person who opens the account and manages the investments (along with their adviser) on an ongoing basis.
In terms of subscriptions though, these can be made by anyone, so grandparents and other family members are welcome.
All subscriptions are classed as gifts to the child, but once the money is in, it is in. No withdrawals are permitted from Jisas, other than in the extremely heartbreaking scenario of the death or terminal illness of the child.
Children born in the UK between September 1 2002 and January 2 2011 were eligible for child trust funds and although these accounts can no longer be opened they can continue to be held until the child reaches age 18.
It is not permitted for a CTF and a Jisa to be held for the same child, however since April 2015 it has been possible to transfer a CTF to a Jisa if the transfer is made as part of the Jisa account opening process.
Subscription limits for both Jisas and CTFs are £4,368 for the 2019-20 tax year.
This rises annually in line with the consumer price index and is always rounded to be divisible by 12 for those wanting to make regular monthly payments. Although the limits are the same, they are separate allowances and the rules are slightly different.
The CTF year runs from the child’s birthday, whereas the Jisa runs in tax years.
If you are considering transferring a CTF to a Jisa this gives an opportunity for a triple subscription in one year.
Questions appear on the last page of this article.