Friday Highlight  

Financial planning for children: what are the options?

Financial planning for children: what are the options?
 Pexels/Emily Ranquist

This month marks the 10th anniversary of Junior Isas, and there could not be a more appropriate way to celebrate this milestone than by delving deeper into some key reasons to recommend them (or not). 

A common concern for parents will be the question of how to save for their children in a tax-efficient manner.

Whether it is a question of parents saving for their child's educational needs or to give them a helping hand, or whether it is about how a legal guardian can help grow a younger person's wealth, Jisas can facilitate all of these requirements and more.

Provider availability

In terms of the rate of take-up when it comes to setting up a Jisa, as a company, we have experienced this to be rather low historically. This is predominantly down to the fact that not many providers offered a Jisa in the past.

This has subsequently reduced the prolificacy and, perhaps more importantly, the level of consumer knowledge of Jisas. This is changing though as more and more providers bring their Jisa to market. There is now plenty of choice.

Tax efficiency

Tax treatment of Jisas is the same as the tax treatment of Isas; gains are free from capital gains tax, and income is tax free. There is a limit of £9,000 on the amount of money that can be paid into a Jisa each year. 

A Jisa can be started with payments of as little as £10 a month or a lump sum of £25 (it varies by provider), and the amounts can be topped up, paused or lowered in line with a client’s budget.

This conveys versatility and is useful for people with limited or varying excess income.

Family and friends can pay into the Jisa once it is established, which gives them an easy birthday or Christmas present option.

Access to/control of the funds 

Monies in the account belong to the child from the start. They can have physical control of the account at age 16 but they cannot actually access the funds until they are 18.

This may of course not be such a good thing, as having access to a large amount of funds at the age of 18 could cause the monies to 'evaporate' or be spent in the pub rather than the book shop.

IHT

Any funds paid into a Jisa will be from the estate of the donor, under the £3,000 a year gifting allowance (this amount has not changed since 1981). This means parents could both put £3,000 into a Jisa, with a generous inheritance tax exemption.

If unused, the £3,000 allowance can be carried over for one more year only. Additional gifts beyond £3,000 a year can indeed be made into the Jisa pot; however, these would be classed as potentially exempt transfers (PETs) and could be liable for IHT.

Gifts out of excess income after tax are, however, wholly exempt from IHT, providing the gift forms part of normal expenditure and the donor’s standard of living is not adversely affected by making these gifts.