Why choose a JISA?
JISA stands for ‘Junior Individual Savings Account’ and is a tax-free way to save for under 18s. With a cash JISA there is no tax on the interest, with a stocks and shares JISA there is no tax on any capital growth or dividends received.
Whilst children typically have little or no income and will not pay tax on savings, one of the benefits of a JISA is when the child turns 18, it will automatically convert to an adult ISA and the monies accumulated will, therefore, remain tax-free.
Additionally, monies paid into a child’s savings account by parents or step-parents may be liable for tax if the child earns more than £100 in interest, JISAs are exempt from this rule.
What are the different types of JISA?
There are two types of JISA; cash JISAs are very much like having a savings account whereas a stocks and shares JISA will invest in shares of companies or in funds ran by investment managers.
What is the eligibility criteria?
The child must be under 18 and living in the UK. For children outside the UK, the adult with parental responsibility must be a Crown servant (in the UK’s armed forces, diplomatic service or overseas civil service) and the child must depend on the aforementioned adult for care.
A child is unable to have both a JISA and a Child Trust Fund (CTF). CTFs typically have lower interest rates so if saving via a JISA is preferable, the JISA provider can usually arrange to transfer the trust fund over. It is worth checking first whether there is a charge to do this.
In contrast, a child can have both a cash JISA and a stocks and shares JISA.
What is the annual JISA allowance?
The annual allowance is how much can be contributed in total per annum, this is set at £4,260 for the 2018/19 tax year. If the child has both a cash and stocks and shares JISA, total contributions to both must be within this allowance.
Once the child reaches the age of 16 they will also be able to open an adult cash ISA and make use of the additional annual allowance (£20,000 in the 2018/19 tax year).
Who can open and contribute to the account?
Parents or guardians with parental responsibility can open a JISA, once the child is 16 or 17 they are able to open their own JISA.
Once established, anyone can contribute to the JISA as long as the annual allowance is not exceeded.
Who has control?
Parents or guardians with parental responsibility can open a JISA and manage the account, but the money belongs to the child.
The JISA will be in the child’s name but the parent who opens it is responsible for managing the account and is known as the ‘registered contact’.
The registered contact is the only person who can change the account type, provider or report changes in circumstances.
The JISA can be managed by the child themselves once they turn 16 but no withdrawals can be made until the age of 18. The only exception to this rule is if a child becomes terminally ill, at which point a request can be made to withdraw funds via HMRC. Should the child die, the funds will form part of their estate.
If loss of control of the monies at 18 is a concern, it may be worth considering alternative saving methods.
Which type should I choose?
This depends on the individual circumstances and objectives.
Cash JISAs are inherently simpler, stocks and shares JISAs have more potential for growth but also loss (particularly over the shorter-term).
JISAs are designed, predominantly, for long-term saving. This means if the interest rate paid on a cash JISA does not keep up with inflation the spending power of the capital could be heavily eroded by the time money starts to be withdrawn. If a stocks and shares JISA is opened when the child is young, there should be more than enough time to ride out market fluctuations.
Cash JISAs are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person per provider should the bank or building society default. However, any investments held in a stocks and shares JISA are only covered up to £50,000 should the platform/broker fail. Importantly, this does not mean you are covered for losses due to the investment itself not performing as well as expected.
What are the key things to look for when selecting a JISA product?
- Interest rate – Is it competitive? Is it fixed or variable? Is it an initial bonus rate?
- Administration options – Managed in branch, online, via phone? Is it easy for others to contribute?
Stocks and Shares
- What are the charges? Are they competitive and offer good value for money?
- What are the historical returns of the investment options? Use this as a guide only, historical performance is not a guarantee of future returns.
- Is it execution only or managed? If execution only you are responsible for selecting the investments.
- Administration options – How is it managed? Is it easy for others to contribute?
Should you like advice on investment opportunities, please contact Natasha Hellewell