You might have an Individual Savings Account (ISA) of your own, but there are a variety of ISAs to take advantage of, including accounts for your children. A Junior ISA is a great way to start saving or investing for your child. Learn more about the benefits and finer points of a Junior ISA by reading on.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
What is a Junior Individual Savings Account (JISA)?
A Junior ISA is a long-term savings and investment vehicle for children up to the age 18. It’s important to note that a Junior ISA account must be opened by a parent or legal guardian.
Junior ISAs are free from Income Tax, tax on dividends, and Capital Gains Tax on the proceeds, so they’re a great, tax-efficient way to build a nest egg for your child. The annual limit that you can contribute to a Junior ISA is £9,000 for the 2023/24 tax year.
But remember, this allotment does count toward your overall £20,000 annual allowance for ISA contributions.
From your child’s 16th birthday until they turn 18, they are able to open up an adult cash ISA and they can make contributions to that account along with any other contributions made to their JISA. What this means is that it’s possible to save up to £29,000 in each tax year leading up to their 18th — a total of £58,000 just by ensuring you use all of your ISA allowances!
You can also take advantage of the JISA allowance in the 18th year of their birth, even if it’s only part of the year. Money can be withdrawn once they turn 18, but letting it grow long-term will help set them up with the best financial situation in the end.
Types of Junior ISAs available
There are two types of Junior ISA you can open, a Junior Cash ISA and a Junior Stocks and Shares ISA. You can open one or both kinds of JISAs.
A Junior Cash ISA is simply a cash savings account that is shielded from tax. A Junior Stocks and Shares ISA invests the money in the account, but it is also shielded from tax.
Keep in mind that you still need to stick to the overall tax year contribution limit even if you have both kinds of accounts. There are pros and cons to both, with potentially great returns on a Stocks and Shares ISA in the long run, but many Cash ISA providers offer excellent interest rates, especially at the moment with high interest rates being the norm for all kinds of banking or borrowing.
Set your children up for success with a Junior ISA
As one of the easiest ways to achieve tax-efficient gains for your loved ones, investing in a JISA is a logical solution. To incorporate an ISA or Junior ISA into your financial portfolio, get in contact with the experts at Dental & Medical Financial Services today.