Keeping up with Junior

Keeping up with Junior

The Junior ISA (JISA), available from 1 November, replaces the Child Trust Fund (CTF) scheme, which closed ISA to new entrants in January 2011. Unlike with CTFs, the government will make no contributions but the scheme does extend the popular ISA structure to those under 18.

JISA can be opened in the name of anyone not entitled to a CTF, which includes all those born before 2002 as well as those born after January 2011. JISA are similar to their ‘senior’ equivalents in that all income and capital gains generated by investments held within them are tax-free. Equally, in common with adult ISAs but distinct from CTFs, there are no limits on the charging structure, which should, in theory, encourage more providers to enter the market and thus more choice for investors. JISAs do differ from ISAs though in a number of important respects, for example, the annual limit is £3,600 compared with £10,680 for an adult stocks and shares ISA.

JISAs also allow switching from cash to shares and vice versa, which is not currently permissible for the senior version. Children will be allowed to hold one cash and one stocks and shares ISA at a time and split the £3,600 limit between the two.

The money cannot be touched until the child reaches 18, but the child can assume management for the trust at 16, should they wish. At 18, the child becomes entitled to the money held within the JISA. If it is not encashed, it will automatically roll into an ISA. A JISA could provide a signifi cant step-up for children whose family and friends get together for their benefi t. Final values will always be subject to factors such as the chosen underlying assets and the investment environment, both of which can have an impact on how much – or little – a JISA will return.

As an example of how much 18 years of saving could offer, assuming the full £3,600 is invested each year and grows at an average of 5% per year, net of charges, that could leave the lucky benefi ciary with a contribution of more than £100,000 towards a world trip, first house or higher education tuition fees. One consideration with JISAs, as was also the case with CTFs, is that parents have no control over how the money is spent once the child turns 18. Nevertheless, the JISA does represent a flexible, tax-incentivised way to create a nest-egg for the future.

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