Junior ISA guide: allowances and rules
What is a Junior ISA?
A Junior ISA (Individual Savings Account) is a long-term savings or investment account introduced by the government to encourage parents to save for their child’s future.
Simply put, Junior ISAs give tax advantages on savings or investments for children until they reach 18. There are 2 types – a cash Junior ISA and a stocks and shares Junior ISA (also known as an investment Junior ISA). The interest earned in a cash Junior ISA is free of UK income tax. The capital growth earned in a stocks and shares Junior ISA is free of UK income and capital gains tax –although, where relevant, tax is paid on any dividend income (income from UK company shares, unit trusts and open-ended investment companies).
Who can have a Junior ISA?
A child is eligible for a Junior ISA if they:
- are under 18
- live in the UK
- do not already have a Child Trust Fund account
*The government paid money in vouchers to parents or legal guardians of eligible children living in the UK who were born between 1 September 2002 and 3 January 2011 in order to set up a CTF on behalf of their children. If the voucher was not used within 12 months of its issue, the government picked a CTF provider for the child. Therefore all children eligible for a CTF should have one already and children with CTFs cannot switch them to Junior ISAs.
What is the difference between a cash Junior ISA and a stocks & shares Junior ISA?
A cash Junior ISA is similar to a normal savings account , but you don’t have to pay UK income tax on the interest, providing all the Junior ISA conditions are met.
A stocks and shares ISA allows you to invest in the stock market. Stocks & shares ISAs are classed as ‘tax-efficient’ as, although your returns are free of UK income and capital gains tax, there are other taxes payable on your investment, such as taxes on dividend income. Additionally, you should remember that the money is invested in the stock market and the value of the investment will rise and fall accordingly so there's a chance you could end up with less than you invested.
For both accounts, no withdrawals can be made until the child reaches 18 years of age.
How much can be saved into a Junior ISA?
The child, parents, family and friends can contribute so long as the combined amount doesn’t exceed the annual Junior ISA allowance of £3,600 per tax year. Unlike regular ISAs, there are no rules to say how this can be saved across the cash ISA and stock & shares ISA. You can choose to save some or all or the allowance into either account so long as the total amount saved in the tax year isn’t more than £3,600. Remember, any money paid into the account belongs to the child. Only they will be able to access it and only when they reach 18.
How many Junior ISAs can a child have?
Unlike regular ISAs , a child can only have 1 cash Junior ISA and 1 stocks & shares Junior ISA at any time. You don't have to take out a new Junior ISA each tax year. The child's cash and stocks & shares Junior ISAs do not have to be held by the same provider – and accounts can be transferred between providers providing all the relevant Junior ISA conditions are met.
Will I (or my child) be able to withdraw money saved in a Junior ISA?
The money in the account belongs to the child and only they will be able to take it out when they reach 18.
What happens when the child becomes 18?
On the child’s 18th birthday, the Junior ISAs will become regular ISAs. The child can then withdraw the money invested in their Junior ISAs if they wish.
My child already has a Child Trust Fund. Can I switch it to a Junior ISA?
No. At the moment you are unable to switch from a Child Trust Fund to a Junior ISA, but the rules may change in the future, so keep an eye on the regulations.
From 1 November 2011, the annual Child Trust Fund allowance matches the annual Junior ISA allowance of £3,600.