Junior ISA basics
5 minute read
Last updated 9 December 2020
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- JISAs are a tax efficient way of saving on behalf of a child under 18
- To hold a JISA the child must be under 18 and resident in the UK
- The JISA can only be opened by someone with parental responsibility for the child
- A stocks & shares JISA can hold a wide range of investments.
- A JISA can only be closed on the child’s 18th birthday, on death or on instruction from HM Revenue & Customs.
What is a JISA?Junior Individual Savings Accounts (JISAs) are long-term, tax-free savings accounts for children. JISAs let you save and invest on behalf of a child under 18. The aims of the JISA scheme are to:
- Provide families with a simple and transparent product to save for children who do not have a child trust fund (CTF) account; and
- Create the conditions for families to save in a tax efficient manner
What is the savings limit for a JISA?
In the 2020/21 tax year, the savings limit for JISAs is £9,000. Subscriptions may be made to a cash JISA, a stock and shares JISA or split in any proportion between the two. For example, if a child has £4,000 paid into their cash JISA from 6 April 2020 to 5 April 2021, £5,000 could be paid into their stocks and shares JISA in the same tax year.
The JISA is a useful option for anyone looking to structure a tax effective savings/investment strategy for a minor. Given that no access to funds will generally be permitted until age 18, the JISA is likely to form an essential part of funding for, say, the increasing costs of higher education.
If the child lives outside the UK, the child can only get a JISA if both the following apply:
- The parent or guardian with parental responsibility for the child is a crown servant (in the UK’s armed forces, diplomatic service or overseas civil service, for example); and
- The child depends on the parent/guardian for care.
It should be noted that it is the child’s residence status at the time of opening the account that counts. Future residence outside the UK will not prevent further subscriptions being made to the JISA.
A child cannot have a JISA as well as a CTF. A CTF is a long-term tax-free savings account for children. If a parent or guardian wants to open a JISA for the child, they will need to ask the provider to transfer the trust fund into it. A parent or guardian cannot apply for a new CTF now because the scheme is closed. However, they can apply for a JISA instead.
What investments are held in a stocks and shares JISA?
Many different types of investment can be held in a JISA, including:
- Insurance policies
- Unit trusts
- Investment trusts
- Exchange-traded funds
- Individual stocks and shares
- Corporate and government bonds
- OEICs (an investment fund vehicle).
How do JISAs work?
With a stock and shares JISA, the cash is invested and no tax is paid on any capital growth or dividends you receive.
Parents or guardians with parental responsibility can open a JISA and manage the account, but the money belongs to the child. The child can take control of the account when they are 16 but cannot withdraw the money until they turn 18.
It is worth remembering that a child can only have one cash JISA and one stocks and shares ISA at any time up to the age of 16 when they can also hold an adult cash ISA.
Transfers can be made from a cash JISA to a stocks and shares JISA. However, money cannot be transferred between a JISA and an adult ISA.
Who can manage your child's JISA
A child’s JISA will be in their name, but the parent or person with parental responsibility for the child 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, for example from a cash to a stocks and shares JISA;
- Change the account provider; and/or
- Report changes of circumstances, for example change of address.
Essentially, the registered contact will be the account contact for all statement and correspondence purposes and there can only be one registered contact at any time. The registered contact is the only person who can give instructions to the JISA manager. During the lifetime of a JISA, the role of registered contact can be passed to another who has parental responsibility.
When the child turns 18, they can take out any money in their JISAs.
JISAs automatically convert into an adult ISA when the child turns 18.
Withdrawals from a JISA
Investments in a JISA may only be withdrawn in the following circumstances:
- Where a terminal illness claim made on behalf of the child has been agreed (see below);
- On closure of the JISA (see below), or
- To meet certain provider management charges and other specific expenses.
Closure of the JISA
A JISA can only be closed:
- On the death of the child;
- On the child reaching their 18th birthday; or
- On direct instruction from HM Revenue & Customs (HMRC) (where the JISA is void).
If a child is terminally ill or dies
Generally speaking, the money in a JISA belongs to the child and cannot be taken out until they reach 18 years of age. However, there are exceptions to this.
The registered contact can take money out of a JISA early if a child is terminally ill. ‘Terminally ill’ means that the child has an illness that is going to get worse and isn’t expected to live more than 6 months.
The parent or guardian with parental responsibility will need to fill in the terminal illness early access form to let HMRC know that:
- The child is terminally ill; and
- They want to take money out of the child’s JISA.
HMRC will let the parent or guardian know if they can take money out of the child’s JISA. The parent or guardian will need to get the child’s medical practitioner to complete the early access medical report form if they are required to provide evidence that the child is terminally ill.
If the child dies, any money in their JISA will be paid to whoever inherits their estate. This is usually one of the child’s parents but could be their husband or wife if they were over 16 and married.
Any subscriptions made after the date of death are not valid subscriptions to the JISA. In addition, where a child dies the interest, dividends or gains in respect of investments in their JISA which arise after the date of death to the date of closure are not exempt from tax. But there is no loss of exemption on interest, dividends or gains which arose before the date of death. This includes any gain arising as a result of the death of the child under the rules for investments in policies of life insurance, as is the case for the VitalityInvest JISA.
What happens when the child reaches 18 years old?
When the account holder turns 18, the rules specific to JISAs will fall away. The child can access the savings in the (former) JISA and can make withdrawals. Any savings in the account that are not immediately withdrawn will stay within the ISA wrapper and the same tax advantages will apply.
Important InformationThe information provided is based on our current understanding of the UK legislation and may be subject to amendments as a result of changes in legislation.
All references to taxation are based on our understanding of current UK taxation law and may be affected by future changes in legislation, the individual circumstances of the investor and pension scheme conditions.
The information provided in this article is not intended to offer advice.
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