How a JISA Can Give Your Kids a Boost in Life
- Editorial Staff
- 1 day ago
- 4 min read
Right now, parents and kids across the UK are enjoying the summer holidays - and some surprisingly warm weather. However, September is just around the corner, and a new school year is an excellent time to start planning for your child's financial future.
Whether you are putting savings aside to help your child buy their first car, buy their first home, take a trip abroad, or attend a higher education facility, there are a few savings options to help parents and guardians give their kids a financial boost in life.
These include:
Junior Individual Savings Account (JISA): A JISA is a tax-free savings account available for any child under the age of 18 who is living in the UK and doesn't already have a Child Trust Fund (although you can transfer it over to a JISA instead). A parent or legal guardian is responsible for opening and managing the account, but the money can only be withdrawn by the child when they are 18 years old. There are two types of JISA available: a cash JISA, where money grows by building interest, or a stocks and shares JISA, where money is invested in the stock market. The child can have a maximum of one of each type open at any time. But that isn’t to say you can’t transfer the account to a better-suited provider; just be sure to follow their transfer instructions.
Savings accounts: A children's savings account with a bank or building society often has a lower rate of interest than JISAs. However, there are no contribution limits, and in some cases, you can access the money before the child turns 18, which is great for short-term and medium-term savings.
Premium bonds: Unlike the above options, where you earn interest, with National Savings & Investments (NS&I) premium bonds, your child is entered into a monthly prize draw to win up to £1million tax-free cash. You can cash in premium bonds at any time without penalty, but they will not provide a regular income or guaranteed returns, as the odds of winning are slim.
This article will explore the four main advantages of opening a JISA on behalf of your child.
The money in a JISA is locked in
The money in a JISA is locked in until the child turns 18. Protecting this money until the child becomes a legal adult comes with the hope that they will choose to keep investing it, or at least, spend the savings wisely and not make any impulse buys.
However, this can sometimes be seen as a disadvantage, as the money belongs to the child and it's not guaranteed they will spend it on what you intended to save for. In addition, even if you or your child have urgent financial needs, the money is locked in until they turn 18.
JISAs are tax-efficient
The government doesn't take a cut of the money saved and invested into a JISA, as long as it remains under the annual allowance of £9,000 per tax year. This annual allowance is per child, so if they have two JISAs in their name (one cash JISA, one stocks and shares JISA), the £9,000 is shared between both accounts.
When your child gets access to their money at 18, they won't have to pay any capital gains or income tax on it, no matter how much it's grown. The JISA will ‘mature’ into an adult version of an ISA when that time comes, meaning they can continue to grow the pot in a tax-free way, if they want to.
Anyone can put money into a JISA
If the JISA provider can facilitate it, anyone can be invited to add money into a JISA, meaning it is the perfect way for family or friends to contribute to your child's financial future on special occasions or whenever they wish.
A JISA can be used to pass down inheritance
As your child will not pay tax on the money in their JISA, it can be a good way to give them access to some of their inheritance early and reduce the amount of Inheritance Tax (IHT) they have to pay when you pass away. This is an advantageous option for families whose estates fall under Inheritance Tax rules.
Every UK resident is entitled to gift up to £3,000 per tax year to another person or multiple persons, with that money remaining tax-free. However, there's a seven-year rule for gifting money above this amount.
For example, if a grandparent were to contribute £7,000 to their grandchild's JISA during one tax year, after seven years the amount is entirely free from any Inheritance Tax bills. However, if that grandparent passes away within seven years, there may be a tax bill to deduct from the JISA balance (the provider will manage this).
Ready To Give Your Kids A Boost In Life?
We understand how important it is to give your kids a financial boost in life, especially with the cost of living continuing to rise in the UK. A Junior ISA could help, so get in touch with a provider today.
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