Investing in a child’s future is often a consideration for many new parents and guardians, and several financial vehicles offer avenues to do so. Among these, Junior ISAs stand as a well-established option. In this piece, we’ll delve into the key features of Junior ISAs and some other potential routes for your child that provide tax-efficient options for investing on their behalf.
Junior ISAs are tax-efficient savings accounts introduced by the UK government in 2011 and designed specifically for children. These accounts allow for tax-free savings and investments up to an annual limit, providing a beneficial route for long-term investment. There are two types of Junior ISA, Cash Junior ISAs and Investment Junior ISAs.
Cash Junior ISAs (JISAs) are similar to a high-interest savings account. The fundamental difference being the funds in the JISA is locked away until the child turns 18.
Investment JISAS (or Stocks & Shares JISAs) allow for shares, bonds, and funds investments. This type presents the potential for higher returns, albeit with a high level of risk inherent in investments, compared to a Cash JISA. At the Children’s ISA, we offer three risk options: Defensive, Balanced or Adventurous. Like a Cash ISA, the funds are only accessible when the child reaches adulthood.
Growth from a Junior ISA (whether Cash or Investment JISA) is entirely exempt from tax (up to the annual limit), making them an attractive investment option for parents who wish to invest on behalf of their children over the long term.
For the current tax year (23/24), a maximum of £9,000 can be invested into a Junior ISA tax-free. This government-determined limit may change annually, so monitoring whether the rules have changed at the beginning of each financial year is important.
Managed by a designated adult until the child turns 18, Junior ISAs convert into adult ISAs when the child reaches adulthood, enabling full control over the funds.
Transferring funds between Junior ISAs provides an opportunity to optimise the child’s investments. Parents and guardians can move money from a Cash Junior ISA to a Stocks & Shares Junior ISA, or vice versa, depending on their financial goals and risk appetite. Note that you can only have one Cash JISA or Investment JISA open at any one time.
In addition to Junior ISAs, there are other child-centred investment options:
Now obsolete, CTFs were a tax-efficient savings scheme introduced by the UK government for children born between 1 September 2002 and 2 January 2011. Even though new CTF accounts can no longer be opened, existing ones can be maintained or transferred to a Junior ISA.
A Junior Self-Invested Personal Pension (SIPP) is another tax-efficient way to invest on behalf of your child. Like a Junior ISA, a parent or guardian controls the account until the child reaches adulthood, but unlike a Junior ISA, the child cannot access the funds in the pension until they turn 55.
Managed by the National Savings and Investment (NS&I), Premium Bonds allow parents, guardians, and grandparents to invest on behalf of a child. While they don’t earn regular interest, each bond enters a monthly prize draw. Prizes are free of capital gains and UK income tax.
As you can see, several options are available when investing on behalf of your children, tax efficiently. And, as with any investment, there will be pros and cons for each vehicle. So, whether the goal is tax efficiency, easy access or anything else, it is important to ensure you are fully aware of the potential pitfalls before making long-term investment decisions.
The website and the information contained therein should not be regarded as an offer or solicitation to conduct investment business in any jurisdiction other than the UK. Past performance is not necessarily a guide to future performance and the value of your investment may fall as well as rise, and any income received in the form of dividends may fluctuate. You may not get back the full amount when the account is closed. If paying regular monthly contributions please bear in mind that if contributions are not maintained you will be less likely to achieve the investment amount that was originally projected.
The information on this website is not advice, it is provided solely to enable you to make your own investment decisions. The investments and /or investment services referred to may not be suitable for all investors.
The Children’s ISA Limited is authorised and regulated by the Financial Conduct Authority. (FCA No: 563043)
The Children’s ISA Limited is a company registered in England and Wales. Registered Company Number: 07486015
Registered Office: Unit 2, Digital Park, Pacific Way, Salford Quays, M50 1DR