If the thought of trying to understand what a Junior ISA is, how it works and what the benefits are fills you with dread, then worry no more. MFM has the low-down from Tom Stevenson and the team at Fidelity Worldwide Investment. We’ve asked all the questions including the silly ones you might have been afraid to! Here’s what we found out…
What is a Junior ISA?
A Junior ISA (Individual Savings Account) is a tax efficient saving account designed to help children save and invest for their future.
Who is eligible for a Junior ISA?
Children who are resident in the UK are eligible for a Junior ISA if they were:
• Born on or after 3 January 2011
• Born before September 2002 and are under 18
• Born between the above dates and don’t have a Child Trust Fund
Can your child have a Child Trust Fund as well as a Junior ISA?
Both accounts can’t be held by the same child at the same time. If a Child Trust Fund wasn’t set up within 12 months of the Government-provided voucher being sent out then one has been set up on your child’s behalf (if born before January 1, 2011). But this is changing. In December 2013 the government announced that people who took out a CTF for their child will be able to move it to a junior ISA from April 2015.
How much money can be paid into a Junior ISA?
£3,840 can be paid into a Junior ISA annually (April to April) in the tax year 2014/15. Do make sure you check with the provider to see if there is a minimum monthly payment. This allowance can’t be rolled over to the following year. So you couldn’t pay £3,000 one year then £4,200 the next. The allowance will increase to £4,000 on 1 July 2014.
Who can pay into a Junior ISA?
The Junior ISA can be topped up by the child, parents, friends and family. Gifts to children that accrue more than £100 gross income are not eligible for taxation.
Can you invest in stocks and shares in a Junior ISA?
Both cash, stocks and shares or a mix of both can be used (up to the £3,840 allowance limit).
Children are non-tax payers anyway – what’s the benefit?
Any returns made on Junior ISA investments don’t count towards the child’s personal income tax allowance. The Junior ISA is automatically swapped to an adult ISA when they reach 18, so they move a tax-free lump sum of money over straight away.
Why have a Junior ISA instead of a regular current account?
Nothing else allows a child to own investments in their own right. A Junior ISA enables children to have exposure to the stock market. Plus, kids can’t get their hands on the money until they’re 18.
If a 16-year-old child already has an adult ISA can they open a Junior ISA?
At 16 years old a child can have up to £3,600 in a Junior ISA and still hold £5,940 in an adult Cash ISA. Gifts from parents invested into an adult Cash ISA are eligible for taxation, should they generate more than £100 worth of income.
If a Junior ISA is income-paying can this income be accessed at any time?
Any income generated from cash, stocks and shares or funds bought will automatically be reinvested into the Junior ISA and will be accessible once the child turns 18.
What is a fund supermarket?
You can only have a Junior ISA with one provider at a time (even if invested in a different tax year). However, if you open your Junior ISA with a Fund Supermarket you can buy funds from several providers at the same time, without needing to switch. So, almost like being able to go into Sainsbury’s and buy Tesco, Marks & Spencer and Waitrose products, a Fund Supermarket allows you to remain with one ISA platform, but get the benefits of several providers.
Why buy funds rather than simply invest money? Is this complicated?
Cash injections into an ISA generally generate around 3% interest. While the risk of buying funds is often higher, the returns can be too. You can choose to use an Account Manager, who will advise you on the best funds to invest in. Importantly, this can mean additional annual charges. Investors must also be aware of inflation, which can erode the value of cash.
Are all banks offering Junior ISA accounts?
Some banks have chosen not to, others have plans to introduce them in the coming months. Current top providers include Nationwide and Coventry.