Learning about savings and personal financial management can never start too early. Similarly, you cannot start too early to save for your child in order to give them a kickstart in life. The Junior Individual Savings Accounts (JISAs), a particular type of Individual Savings Accounts (ISAs) for UK residents, are designed to do just that, as they are a long-term, tax-free savings account for children.
Parents or guardians can open and manage the account, but the money belongs to the child. The child can take control of the account when they turn 16, but cannot withdraw from it until they are 18.
The Junior ISA allowance, the maximum sum you can invest in one tax year on this account is £9,000 for the 2021/2022 tax year. If you have several children and want to start saving for all of them, you can open an account for up to £9,000 for each child. This comes on top of your annual ISA allowance, which is currently capped at £20,000 in one tax year.
As with other ISAs, you don’t have to pay taxes on the returns earned on your Junior ISA. This means that when your child turns 18 and has access to the money the Junior ISA will not be liable for income tax or capital gains tax. An interesting aspect of the ISA system is that children aged 16 and 17 can also open their own cash ISA, while having a Junior ISA at the same time.
To open a Junior ISA for your child, they must be:
- under 18
- living in the UK
- or having a parent be a Crown servant (meaning the parent is in the UK armed forces, diplomatic or overseas civil service)
- depending on you for care
There are two types of Junior ISAs:
- cash Junior ISA – you will not pay tax on the interest you earn on the cash
- stocks or shares Junior ISAs – you will not pay tax on any capital gain or dividends
One child can have one of each type of account, if you split your annual £9,000 allowance between the accounts. Which one you choose should depend on your attitude towards risk: cash ISAs have low risk but also offer low returns, while stocks and shares ISAs require you to be more comfortable with risk-taking while offering potentially higher returns on the long term. Bear in mind that any unused allowance at the end of the tax year will be lost and will not be added to your allowance the following year.