Investing in your child's future with a Junior ISA

20 November 2021

Scott Palmer, Chartered Financial Planner

Universal Children's Day is celebrated annually on 20th November. Launched by the UN in 1954, its goal is to improve child welfare worldwide, promote and celebrate children's rights and promote togetherness and awareness amongst all children. Each year has a different theme, and this year’s theme is: “ Investing in our future means investing in our children”. With this in mind, we take a closer look at one way in which individuals can plan for the financial future of their children by using a Junior ISA.

What is a JISA? 

A Junior ISA (JISA or child ISA) is a tax-free account set up by a parent or guardian for children under the age of 18 living in the UK.  The parent or guardian will contribute to the account but only the child can access the money – and only after they turn 18. For this reason, they are viewed as long-term savings. There are two types of Junior ISA; the Cash Junior ISA, which is deposit-based and pays interest on cash saved, and a Stocks and Shares Junior ISA, which is invested in stock markets and provides capital growth as well as dividends. It is possible to have one or both types of Junior ISA.

 

Who can open a JISA? 

Only parents or a guardian with parental responsibility can open a Junior ISA. Once set up, it is possible for grandparents and other relatives to contribute as well. When the child turns 16 they take ownership of the Junior ISA, but they can only access the money from age 18. If your child already has a Child Trust Fund it is possible to transfer it to a Junior ISA, but you cannot have both at the same time.

 

JISA allowance limits

In the 2021/2022 tax year, it is possible to invest up to £9,000 into a Junior ISA, which can be spread across both types. It is possible to do this as a lump sum or as ongoing monthly contributions.

 

JISA withdrawals

As the Junior ISA is designed to run until the child turns 18, it is only possible to withdraw money in the following special circumstances:

• Terminal illness of the child
• Closure of the Junior ISA
• To meet certain provider charges and other specific expenses

 

Transferring JISAs between children 

This can depend on the terms of the account opened. However, most providers allow a transfer of funds from a Cash Junior ISA to a Stocks and Shares Junior ISA or vice versa, or to transfer the Junior ISA to another provider if a better rate is found elsewhere.
 

Benefits and drawbacks of JISAs 

As with anything there are pros and cons of investing into Junior ISAs compared to other options that can be taken, and these need considering before proceeding. The obvious benefits are that Junior ISAs are tax-free savings that can benefit from long-term growth.  They are also easy to understand and easy to open. The drawbacks to a Junior ISA include the limit on how much you can save into a Junior ISA each year. However the biggest drawback can be that the child is free to utilise the savings as they see fit once they turn 18, leaving the parent with no control over it. At 18, that may scare some parents.

 

To sum up, as shown, the Junior ISA is an important consideration and provides many benefits that parents see value in as long as they are happy to commit money they won’t get back. It can provide a great head-start for children, especially at an age when it can be used for education, housing or a first car. That said, it isn’t a solution for everyone and others may prefer an alternative solution such as a pension or Trust, both of which can allow a greater element of control over a longer period of time.