Let us take ‘Josh’ as an example.
Josh’s birthday is October 1 and he currently has a CTF, but his parents are thinking of moving it to a Jisa.
No payments have been made into his CTF since his last birthday, but his parents have a bit of spare cash and now want to maximise the subscriptions.
They can pay in £4,368 before September 30 and another £4,368 on October 1 in the new CTF year.
If they then make the transfer to a Jisa they can make a further subscription of £4,368 to the Jisa once the transfer has completed.
This allows a total of £13,104 to be subscribed in one tax year. The next date the Jisa could be subscribed to would then be April 6 at whatever the new subscription limit is for2020-21.
Even without a bumper year with extra subscriptions, an organised parent who sets up a Jisa shortly after their child is born and pays in the maximum at the start of each tax year, could see their child have a fund in excess of £150,000 by their 18th birthday (assuming subscriptions increase 2 per cent a year and 5 per cent growth net of charges).
A fund that size would make a great 18th present, taking care of university fees and leaving enough for a hefty first house deposit, but parents should be aware that their offspring will be getting a letter from their Isa manager about it automatically converting to an adult Isa and the parental controls are off – an 18 year can withdraw funds as and when they like.
Turning to pensions now and the option of setting up a scheme for a child.
This is definitely one for the long game, and primarily used by wealthy clients who have exhausted the Jisa allowance for their offspring.
It is possible to pay in £2,880 a year, which will be topped up to £3,600 under relief at source, even when there are no earnings.
As a registered pension scheme, the investments can grow tax-free and the benefits of compounding will be substantial, given the funds cannot be accessed for a time frame of potentially 50 year or more.
With relatively low contribution limits it is important to look at the charges, as they can have a big impact on small funds in the early years.
It would usually be the parent or legal guardian who would set up the pension and make the investment decisions, but some providers may allow grandparents or other adult family members to do so.
Another use for junior pensions is where a child is a beneficiary after a family member’s death and has funds designated to flexi-access drawdown in their name.