It’s important to think about you child’s future, we all want them to be better off than us. One of the ways you can do that is by opening and contributing to a Junior Individual Savings Account (JISA).
It is also important to involve you child in their financial future. Many parents are uneasy with the idea of their child getting access to savings when they are 18, I would argue that if you involve you child from an early age they will be able to develop financial literacy.
- What is a Junior ISA
- How to open an account
- Making contributions
- Who manages a Junior ISA
- Circumstances allowing withdrawal of funds
What is a Junior ISA?
A Junior ISA is a long term and tax free savings account for children. A maximum of £9,000 can be contributed towards each child’s Junior ISA, this does not impact the contributing adults ISA limit.
In order to have a Junior ISA the child must be:
- under the age of 18,
- and resident in the UK.
There are exceptions to the residency requirement but both of the following must apply:
- you are a Crown servant (e.g. armed forces, diplomatic service or oversees civil service),
- and the child depends on you for their care.
There are two types of Junior ISA – cash and and stocks and shares. With a cash Junior ISA all contributions will earn a set interest rate tax free, this is set by the ISA provider. In a stocks and shares Junior ISA any contributions will be invested and any capital gains or dividends will be tax free.
How to Open a Junior ISA
Only parents or guardians with parental responsibility can open a Junior ISA for a child under the age of 16. Children aged 16 and 17 can open their own Junior ISA as well as an adult cash ISA.
To open a Junior ISA you need to:
- Choose which type of Junior ISA – cash or stocks and shares or both
- Choose the account provider
- Get an application form from them, this can also be online.
You child can only have 1 cash and 1 stocks and shares Junior ISA, these can be held and contributed at the same time but total contributions across both must not exceed £9,000.
Anyone can pay money into a Junior ISA, but the total money paid in cannot go over £9,000 in a tax year.
You can also transfer money between your child’s Junior ISAs, and between a child trust fund (CTF) account and a Junior ISA. You may need to contact your ISA provider to arrange for the latter.
You cannot transfer money between a Junior ISA and an Adult ISA. If you child moves abroad you will still be able to add cash to their Junior ISA.
Who Manages a Junior ISA
While the Junior ISA will be in the child’s name and the funds legally theirs, it is the parent or legal guardian who opens the account that is responsible for the managing the account. The parent or legal guardian is known as the ‘registered contact’.
The registered contact can:
- change the account, i.e. from cash to stocks and shares
- change account provider
- submit changes of circumstances such as address changes
When the child reaches 16 years old they can become the registered contact for their Junior ISAs, this in addition to being able to open an Adult ISA. When they turn 18 the Junior ISA automatically turns into an Adult ISA.
Circumstances Allowing Withdrawals of Funds
There is only one circumstance where there registered contact is able to withdraw funds from a Junior ISA, if the child is terminally ill. Terminally ill means that the child has a disease or illness where they are not expected to live more than 6 months.
To take money out you will have to fill out a terminal illness early access form which will let HMRC know that the child is terminally ill and you want to withdraw funds. HMRC will contact you in response to the form to give authorization to withdraw funds.
If the named child dies then any money in their Junior ISA will go to whoever inherits their estate. This is usually one of the child’s parents. But if they were over 16 and married or in a civil partnership it may go to their spouse.