Teenagers get better tax savings than their Parents

Teenagers can get bigger ISA entitlements than Mum and Dad

On the 1st November, tax-free children’s savings accounts, known as ‘Junior ISAs’ will be available providing parents a tax-free way to save for their children’s future.

Junior ISAs are a tax-free savings account for children, introduced to replace the Child Trust Fund accounts, but unlike the Child Trust Funds, the Government will not make any payments into the new Junior ISAs.  However they will only be available to children who do not have a Child Trust Fund already.

The key features of the Junior ISA are:

  • Open to children living in the UK who do not have a Child Trust Fund account.
  • 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
  • Up to £3,600 can be paid into these accounts each year
  • Accounts will automatically become “normal” ISAs when the child is 18

As with Child Trust Funds, the following rules will apply to Junior ISAs too:

  • 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 account makes will be tax free

So anyone under 18 can have £3,600 saved in their name – out of the reach of the taxman, and because of a loophole in the rules, some young people can put a total of £14,280 into ISAs in a single tax year.

Jason Thomas financial planner with HSJ Asset Management explains the loophole, “Under the Junior ISA rules, subscriptions can be made up to the eve of the child’s 18th birthday. So a young person can put £3,600 into their accounts per tax year which runs from 6 April to 5 April.  Then, on their 18th birthday, they become entitled to a full adult ISA allowance of £10,680. This means that in their 18th year between 6 April and their 18th birthday, the total amount they could shelter from the taxman would be £14,280.”

Compare this with current adult ISAs, where you can put £10,680 into shares or other investments or up to £5,340 into cash ISAs. With Junior ISAs you can choose investments or cash.

If you would like to discuss the introduction of Junior ISAs, or indeed any aspect of saving for children and grandchildren (including for school and university fees)  please call Jason on 0845 365 1000, or email him on Jason.thomas@hsjam.uk.com