One of the subjects that our clients regularly ask us for advice on is investing for children or grandchildren. Financial Planner and resident expert at FPC, Helen Thomas has hopefully covered some of your questions below…
Q. What is a Junior ISA or JISA?
A. Basically, it’s an Individual Savings Account for children in which funds grow tax free.
Q. Who can have a JISA?
A JISA can be opened for a child if they are under age 18 and live in the UK.
Q. What’s a Child Trust Fund or CTF?
They are tax-free savings products, similar to the JISA, the difference being that they were set-up for children born between September 2002 and January 2011 and are now no longer available to new customers.
Q. How much can be invested in either a Junior ISA or CTF?
A. It’s the same! This year, the annual limit is £4,368. The difference being that for Junior ISAs, it’s the tax year and for CTFs, it runs from birthday to birthday.
Q. Can you make withdrawals from a JISA or CTF?
A. No – As soon as you put any cash into a JISA or CTF, it’s locked away until the child reaches 18, at which point it becomes theirs.
Q. I’m a grandparent – can I put money into a JISA or CTF for my grandchildren?
A. Yes, family and friends can all save on behalf of a child as long as the total stays under the annual limit. A child’s parent or legal guardian must open the JISA on the child’s behalf. CTFs are now closed to new customers so you’ll only be able to save into an existing one.
Q. What can a JISA or CTF invest in?
A. It is possible to leave the money in cash or invest in stocks and shares. The Junior ISA allowance can be split between cash JISA and Stocks and Shares JISA.
Q. What about cash savings accounts for children?
A. There are plenty of children’s savings accounts out there, with many paying a decent level of interest. The benefit of course over Junior ISAs and CTFs is that there is no legal annual limit. The only limit is set by banks and building societies and relates to the interest payable. Children also have full personal allowances (£12,500 in the 2019/20 tax year) as well as personal savings allowance (£1,000) and starting savings allowance (£5,000) to use. Therefore, depending on the size of their savings, they may well receive the interest tax-free anyway. The only issue here is that children can access this at a much younger age. Some accounts even offer debit cards from age 11 onwards.
Q. If gift money to my child and deposit the money in a savings account, will I be taxed at all?
A. It all depends on how much interest is earned. If interest earned is over £100 per annum, then yes, you’ll be taxed as if it’s your interest. It is also on a ‘per parent’ basis rather than a ‘per child basis’ so if total interest from all children equates to more than £100, it will be taxable as if it’s your income. The interesting point here is that grandparents and other family members aren’t affected by this rule.
Q: What if I want to go further and set aside a lump sum for my children or grandchildren?
A. This is where Trust Planning might be relevant but more detailed guidance is required so contact us to find out more. Whilst setting up a Trust is a relatively simple process, it is important to understand the tax implications and administration and reporting requirements before you take any action.
Part of our role is to help you decide how generous you can afford to be with yourself and others. We use powerful lifetime cash flow modelling to give you a virtual view of your current and future position and can help design gifting strategies to create a lasting legacy for future generations. To find out more just give us a call.