What is a Junior ISA (JISA)?
The Junior ISA is a tax-free savings account for children. However, unlike the Child Trust Fund account (which has been closed to children born on or after 3 January 2011), the government will not make any payments into the new accounts. The key features of the Junior ISA are:
- children living in the UK who do not have a Child Trust Fund (CTF) account will be able to have a Junior ISA. This means that even children who have the minimum CTF (ie it wasn't topped up by parent etc) cannot have a JISA.
- people will be able to put money into a cash account or ‘stocks and shares' account
- each child will be able to have one cash and one ‘stocks and shares' Junior ISA at any one time
- there will be a total yearly limit of £3,600 for all payments into these accounts. This limit will increase with CPI each year. The first inflationary increase is due in April 2013.
- accounts will become ISAs when the child is 18
As with CTFs, the following will apply to Junior ISAs:
- the accounts will belong to the child and they are not able to get the money out until they are 18
- the child can become responsible for the account when they are 16
- any money the accounts make will be tax free
- a range of banks, building societies, credit unions, friendly societies and stock brokers will offer Junior ISA accounts
Who can open a Junior ISA account?
A parent or guardian can open a Junior ISA for an eligible child.
Are there different types of Junior ISA?
Like adult ISAs, there are two types of Junior ISA:
- Cash Junior ISAs
- Stocks & Shares Junior ISAs
There can be a Cash Junior ISA and a Stocks & Shares Junior ISA provided the investment is no more than the annual contribution limit (£3,600 for 2011/12 tax year).
Children will only be able to hold one Cash Junior ISA and one Stocks & Shares Junior ISA at any time. It will be possible to transfer funds from one type of Junior ISA to another. It will also be possible to transfer between providers.
Can parents access money held in Junior ISAs?
No, only the child can withdraw cash from the Junior ISA when they reach age 18, except in cases of terminal illness or death.
Are Junior ISAs different from Child Trust Funds?
Yes, the main difference is that there will be no government contributions to Junior ISAs as there were with Child Trust Funds.
Can Child Trust Funds be transferred to Junior ISAs?
No. The Junior ISA is only available to children who didn't qualify for a Child Trust Fund.
Subscriptions between ages 16 and age 18
When a child reaches age 16 they can apply for an ‘adult' cash ISA which they can subscribe to in addition to any subscriptions made to their JISA(s).
Holding both a cash JISA and an ‘adult' cash ISA does not breach the JISA rule that the child can only have one JISA account of each type, and the subscription limits for all ‘adult' ISA products apply independently of whether or not a child holds, or has held, a JISA in the relevant year..
Therefore, in the tax year in which the child turns 16 they can subscribe up to the JISA limit, and from their 16th birthday they can, in addition, subscribe up to 50% of the overall ‘adult' ISA limit to a cash ISA.
In the tax year in which the child turns 17 they can subscribe up to the JISA limit, and subscribe up to 50% of the overall ISA limit to a cash ISA.
In addition, from the start of the tax year the child turns 18, they can:
- use their whole JISA subscription limit (even though the JISA will be held for a part-year only); and
- subscribe 50% of their overall ‘adult' ISA limit to a cash ISA; and
- from their 18th birthday, invest in a stocks and shares ISA, subject to the normal ‘adult' subscription limits.
Should you wish to consider a Junior ISA or for further information do not hesitate to give Craig Kennedy a call at Innes Reid on 01244 347 583.