Junior ISA limit increases to £9,000
In the budget on 11 March 2020 the government announced that the amount that can be invested in Junior ISAs increased to £9,000 for the 2020/2021 tax year. At this level Junior ISAs will be at the forefront of parents and grandparents minds when it comes to investing for their children and grandchildren.
Not all families will be able to save this amount of money and the new allowance of £9,000 may be ambitious for many. But even a small amount put away regularly can build up to a sizeable investment by the time the child reaches 18.
What are Junior ISAs?
Junior ISAs are simply tax-efficient savings products for children under the age of 18.
They can be opened by a parent or guardian on behalf of a child or they can be opened by children themselves if they are between 16 and 18 year’s old.
Once opened anyone can pay into a Junior ISA, up to the annual limit of £9,000.
Money in a Junior ISA cannot be withdrawn until the child reaches 18.
Types of Junior ISA
There are two types of Junior ISA.
A Cash Junior ISA is just like a normal savings account from a Bank or Building Society. As the first £1,000 of interest from cash deposit accounts is free of tax, the tax free benefit of a Cash Junior ISA is less important than it was, in today’s low interest rate environment.
A Stocks & Shares Junior ISA usually invests in a stock market fund which has some risk but the potential to outperform cash deposits. There is no personal income tax or capital gains tax to pay on any growth in a Stocks & Shares ISA.
It is also possible to divide your money between a Cash ISA and a Stocks & Shares ISA, providing you don’t exceed the annual allowance in the tax year.
You can only have one Cash Junior ISA and one Stocks & Shares Junior ISA at any time. Once opened, subsequent year’s savings have to be invested in the same Junior ISAs. You can, however, transfer all the money held in a Junior ISA to another provider.
Choice of Junior ISA
Your attitude to risk and the child’s age will affect your choice of Junior ISA.
Stocks & Shares ISAs have more risk than a Cash ISA and its value could go up or down.
However, shares typically outperform cash over the medium to long term, so you might be prepared to take some risk in anticipation of a greater reward.
With a Stocks & Shares Junior ISA your children’s money can be invested in funds, shares, investment trusts, corporate bonds and government bonds. The mix of investments is determined by your choice of provider, usually a Friendly Society, Insurance Company, Investment Manager or Stock Broker.
Friendly Societies are a popular choice for Stocks & Shares Junior ISAs as they often include a guaranteed payout when the child turns 18 providing the money has been invested for a certain number of years. Additionally some Friendly Societies invest the child’s money in a With-profits Fund which has a low to medium risk profile and aims to smooth out some of the volatility associated with stock market investments generally.
Access to the money
Once the money is put into a Junior ISA, it belongs to the child and only they can access it when they are 18. At 18 the Junior ISA becomes a standard ISA.
In the tax year when the child becomes 18 they will then be able to invest up to the ISA annual limit (£20,000 for 2020/21) on top of the money already saved in their Junior ISA
Want to know more?
For more information about Healthy Investment’s Stocks & Shares Junior ISA and to discuss how it might benefit your child you can call a member of our team on 0161 762 5790 or visit www.healthyinvestment.co.uk