Junior ISAs: Frequently asked questions
When you’re ready to help your kids prepare for their futures, there’s a lot to consider and look over. But when it comes to finding the perfect combination of tax-savvy help and strategic financial planning, few things are as effective as setting up a Junior ISA for your kids.
To help you get more clarity and find the perfect choice for you and your family, here are the most commonly asked questions about setting up a Junior ISA.
What is a Junior ISA?
Junior ISAs are a method of helping your child get a great start in life when they turn 18 by providing them with funds to spend as they see fit. It’s a tax-savvy way of helping your child without having to worry about how it will affect any of your existing ISAs.
Junior ISAs come in two main categories – Junior cash ISAs and Junior Stocks and Shares ISAs. For a Stocks and Shares ISA, your money will be invested in the stock market. There’s the potential to earn more this way, but the risks are high due to the potential volatility of the markets.
How much can I put into a Junior ISA?
Junior ISAs currently have a limit of £9,000 per tax year. As long as you remain within this amount (this includes contributions made by other people into the account) you’ll not incur any tax for that annual amount. If you have a Junior Stocks and Shares ISA in addition to a Junior Cash ISA, the combined amount in both accounts will still need to be a maximum of £9,000.
Who can contribute to a Junior ISA?
Anyone can contribute to a Junior ISA, not just family members or the individual who opened the account. And as long as the account stays within the £9,000 limit annually per tax year, the money can remain in there completely tax-free.
Because others can put funds into the account, many people like to give a Junior ISA as a gift from all of the family when someone turns 18.
What are the benefits of a Junior ISA?
A Junior ISA has many benefits for you and your child. First of all, it teaches them about the importance of saving money. Secondly, it gives them a nest egg to get started in life with. Thirdly, the money inside a Junior ISA has the ability to grow tax-free!
For adults, perhaps the biggest benefit of all is that a Junior ISA has no impact whatsoever on the ISA allowance of the person who opened the account.
Do I own the Junior ISA?
This is important to understand, as it’s a common mistake that people make when opening up a Junior ISA. Once your child has turned 18, they are legally classed as an adult. When that happens, they can do whatever they want with the money that’s in their Junior ISA.
It’s no longer a child’s ISA, and they will have total control over the account, just like they would with a standard adult ISA. While people can advise them on what to invest that money into, it’s ultimately their choice.