If giving your little one a nest egg when they reach adulthood is something that you’d like for them, then a Junior ISA may be just the thing to prepare your baby bird for their first flight.
Whether it’s investing in their education, some character-building world travel, or a lift onto the property ladder; whatever future help you dream about giving them, the costs all add up.
But you could make the financial planning simpler by taking advantage of their tax-free Junior ISA allowance.
Junior ISAs (or JISAs as they’re commonly known), give you the opportunity to build your child’s savings and/or investments before they turn 18 (without it affecting your own tax-free ISA allowance). It is important to note, however, that your tax treatment will depend on your individual circ*mstances and may be subject to change in the future.
Here’s an in-depth look at what you need to know about the JISA allowance for 2024-2025.
What is a Junior ISA allowance?
Just as adults are entitled to save and invest up to a certain amount in the tax year without paying tax, your child is entitled to that tax-efficient benefit, too. Every child in the UK is entitled to a set allowance during each tax year, and you can deposit funds into a Junior ISA on their behalf (without it affecting your own ISA allowance).
Parents and legal guardians can open a tax-efficient Junior ISA on behalf of their dependant – and give the child access to an opportunity to save and/or invest before their 18 birthday – without the sting of them paying Income Tax or Capital Gains Tax on the day they withdraw.
What is theJunior ISA allowance for 2024/25?
As it stands, each child is entitled to save or invest up to £9,000 tax-free during each tax year. Consolidation of interest over the years can be a big factor in building a child’s wealth, especially if the Junior ISA is opened at birth and builds up over the full 18 years.
The £9,000 allowance is the current limit and may be subject to change in future tax years (starting April 6th each year until the following April 5th).
What is the Child Trust Fund allowance?
You may have heard of a Child Trust Fund (CTF) and wonder how these work in conjunction with a Junior ISA.
Well, there are still Child Trust Funds in circulation, as they were automatically opened for any child born between 1st September 2002 and 2nd January 2011. However, Child Trust Funds have now been replaced by Junior ISAs — and it’s important to note that your child can’t have both a Junior ISA and a CTF open at the same time.
As the UK Government deposited money on behalf of the children born between the above dates, there are many CTFs out there that are lost or unknown to their owners. And with compounding interest at play, there could be a nice surprise waiting for your child when they investigate. Check out this blog to learn more about how to find a lost Child Trust Fund.
If you still have a Child Trust Fund, then you can still contribute to it. But if you want to move from a Child Trust Fund to a Junior ISA, then you’ll need to transfer the full amount.
The limits for a Child Trust Fund are the same as those for a Junior ISA, which means that for the 2024/25 tax year, you can put up to £9,000 away for your little one.
Is theJunior ISA allowance per child?
Yes. If you have more than one child, then they will each have their own Junior ISA allowance. So, for example, in the 2024/25 tax year, you’d be able to save and/or invest up to£9,000 for each of your children in a Junior ISA.
This is because any money placed in a Junior ISA belongs to your child, meaning they are entitled to their own allowances.
What types of Junior ISA are available?
There are two types of Junior ISA you can open:
Junior Cash ISA
This is simply a cash savings account where you don’t have to pay tax on any interest you may receive from your money.
Junior Stocks and Shares ISA
Your child can be an investor before they even turn one! With this type of account, your money is invested, and you won’t pay tax on any profits you receive from these investments.
You can choose to open one, or both of these types of Junior ISA.
If choosing the latter, your child’s Junior ISA allowance of£9,000 will be split across the two accounts (but you have complete flexibility in how you use this during each tax year).
For example, you could choose to do an even 50/50 split between investments and cash, or you could choose to put 10% in cash and 90% in stocks — or vice versa. It’s completely up to you!
Because you’re committed to long-term savings with a Junior ISA, many Cash ISA providers will offer you better interest rates than you may get from normal savings accounts.
It’s also worth noting that committing to long-term investing could help you ride out any market ups and downs that are normal to experience.
As with all investing, however, your capital is at risk with a Junior ISA, and your child could get back less than invested.
What happens if you go over your Junior ISA allowance?
The maximum Junior ISA allowance in the current tax year is £9,000, but if you accidentally paid too much money into your child’s account this year, don’t worry.
You won’t receive any tax relief on anything extra you deposit beyond the £9,000 allowance limit. However, HMRC will be in touch with you at the end of the tax year to provide further advice on how to correct this mistake.
When does the JISA allowance reset?
The Junior ISA annual allowance resets on April 6th each year. You have until 11:59pm on April 5th of the following year to save and/or invest up to £9,000 for your child.
Junior ISA Historic Allowances
We’ve seen a lot of changes to the Junior ISA allowance since it was introduced back on November 1st 2011. See the table below to better understand how much it’s increased over the years[1].
It is worth noting that while historically the Junior ISA allowance has increased, it is not certain this will stay the same in the future. As the limits are set by the government in charge, it is possible for them to decrease in future tax years. Keep an eye on this using the .Gov website.
Does a JISA transfer count towards allowance?
There are many benefits to transferring a Junior ISA. Some parents may find that a Junior Cash ISA is the best route for their child’s savings. Others may prefer to consolidate all the money into investments using a Junior Stocks and Shares ISA.
Or somewhere between the two, some might like to split the funds between a Cash JISA and a Junior Stocks and Shares ISA to diversify their child’s money pots. Whichever option works for you, it’s good to know how the transfer might affect your child’s allowance.
As JISAs can’t be easily closed before the child turns 18 (unless in exceptional circ*mstances only), transfers are fairly common in the world of Junior ISAs.
So, if you’re concerned about whether the transfer would affect the child’s tax-free allowance, the short answer is no (as this is typically a concern for those who withdraw their adult ISA money without ‘transferring’). But this assurance comes with the caveat that you should follow the JISA provider’s instructions for transferring the money.
They’ll typically have a form or procedure to complete, and it’s also worth checking whether there are any fees or charges for transferring.
Note: You won’t be able to hold a Child Trust Fund and a Junior ISA for your child at the same time. If they happen to have a Child Trust Fund and would prefer to transfer the funds over to a Junior ISA, the existing amount will need to be transferred to the new Junior ISA provider (subsequently closing the CTF down). Be sure to check the Terms and Conditions of your new provider and follow their transfer process as they describe.
How to use my child’s ISA allowance?
This will depend entirely on you, your personal finances, and how you’re planning to save. Adding to your child’s ISA little and often can have a significant impact, even if it doesn’t feel like much.
For example, if you put just £35 into a Junior Stocks and Shares ISA every month from when they were born, by the time they’re 18 they could have around £10,744 waiting for them. That could go a long way in helping towards moving into their first home or buying a car, for example.
Although, do keep in mind that this projected value may vary depending on market performance, and fees and fund charges also apply[2].
It’s worth noting that the earlier you start saving for their future, the more potential you could be giving their money. This is because of a handy little thing called compounding – which is where any profits you receive are re-invested and able to create profits of their own. Over time, these profits can really add up and the value of your plan will reflect this.
How to open a Junior Stocks and Shares ISA
If you’ve decided that you want to teach your little one about the potential of investing, then opening a Junior Investment ISA couldn’t be easier.
Thanks to digital investment platforms like Wealthify, opening an Investment ISA suitable for a child is a task that can be done in minutes. Simply choose how much you want to invest, pick an investment style that suits your needs, and our team of experts will do the rest for you.
Sit back and watch as we build a Plan for your child with a range of different investments from all around the world.
One benefit to investing is that you can choose to use your child’s money to help drive a positive change in the world through an Ethical Junior ISA. Choosing this option ensures that all of your child’s investments go into companies and organisations that are committed to delivering a positive impact on the world — effectively giving you the opportunity to build a better world for their future.
Your tax treatment will depend on your individual circ*mstances and it may be subject to change in the future.
Please remember that past performance is not a reliable indicator of your future results.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
References:
1: https://www.fool.co.uk/investing-basics/isas-and-investment-funds/historic-annual-isa-allowances/
2: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £8,235. If markets perform better, your return could be £14,176. Values correct as of 31/07/2024.
