What is a Junior ISA?
Junior ISA is a new savings scheme being introduced by the Government. It will come into effect from 1st November 2011, and will allow children ineligible for a Child Trust Fund (CTF) to build up a savings or investment pot in a way that is tax-efficient.
Who is eligible?
All UK resident children (under 18) born before 1st September 2002 and since 4th January 2011 are eligible to open a Junior ISA.
What sort of accounts will be available?
As with adult ISAs, there will be both a cash and a stocks and shares version, with each child allowed to have one account of each type, although an annual contribution limit of £3,600 will apply across both accounts. This will rise in line with consumer price inflation each year from 6th April 2013.
What makes Junior ISAs tax-efficient?
Cash Junior ISAs will receive interest without deduction of tax. Stocks and shares Junior ISAs will grow free of any potential capital gains tax liability. Interest income, such as that from government or corporate bond holdings, will be free of income tax. However, dividends from shares are paid with 10% tax deducted, and this cannot be reclaimed even inside a Junior ISA
Who can contribute?
Anyone can contribute to a child’s Junior ISA, provided the overall annual limit is adhered to, but accounts can only be opened by a “registered contact” – someone with parental responsibility for the child. The exception to this is if a child is 16 or over, in which case they may open an account for themselves.
What happens when the account holder grows up?
From the age of 16, the account holder can assume responsibility for the account. They are able to then decide how it is invested, but cannot withdraw the money. At age 18, the Junior ISA rolls over into an adult ISA and the account holder assumes full control, provided they sign up to the adult account’s terms and conditions. The right of those aged 16 or over to open an adult ISA is not affected, meaning that in theory a young person between 16 and 18 could invest up to £3,600 a year in their Junior ISA, whilst at the same time investing a further £5,340 a year (at current levels) into a separate adult ISA.
If you would like further information, contact Matthew Walne on 0116 2355 733 who will be happy to help.
