Junior ISAs were launched on 1st November 2011 and are proving to be a very useful savings vehicle for many of our clients.
Like the ‘adult’ ISA, investment returns from a junior ISA are free from personal liability to income and capital gains taxes. However, unlike the adult ISA, anyone can contribute to the junior ISA allowing parents, relatives and friends to save for the child in a single vehicle. No tax is payable by any contributor to a junior ISA and importantly, that includes the parents. This means the current income tax anti-avoidance rule on parental gifts to children that generate more than £100 gross income, will not apply. This has been a distinct problem in the past for parents who want to save for their child, as income from relatively small gifts would end up taxed on them not the child.
The junior ISA does come with strings attached. No withdrawals can be made until age 18. For some this will be a disadvantage, for others an advantage. The child will have automatic access to the monies at age 18. If that is an issue, then traditional methods of investing using a trust may still be appropriate. Overall, for parents and grandparents, along with other relatives and friends, who want to provide a foundation for a child’s financial future, the combination of potential tax benefits coupled with the simplicity of investing make the junior ISA a welcome addition to the tax planning store.
Please contact Peter Davies, of financial advisers Cardiff – Create Wealth Management if you would like to discuss the range of Junior ISAs available in the marketplace.