Have you taken advantage of the first year of the new Junior ISA on behalf of your offspring?
Following its announcement in the March 2011 Budget, the new Junior ISA has been available since 1 November 2011. A Junior ISA is a new type of children’s savings account designed specifically to replace the now defunct Child Trust Fund and is aimed at providing parents, grandparents and any other person or organisation who wishes to contribute with a simple and tax-free way to save for the child’s future.
All individuals, including minors, are entitled to their own personal tax allowance. For the year which started 6 April 2011 this is £7,475. At an initial glance this Tax Free opportunity may not look that attractive, however, when capital is invested from a child’s parents then, for tax purposes, interest paid on the capital in excess of £100 is deemed to be that of the parent. Should that parent be an additional or higher rate tax payer this could amount to a significant saving which would otherwise be taxed via the parents’ self-assessment tax return.
The ISA investment can either be a cash investment or a stocks and shares investment with an annual limit of £3,600 being contributed in total to either account or a combination of the two accounts but there can only be two accounts. The government has not set a cap on the minimum contributions required and it is understood that some providers will accept a minimum balance of £1 for a Junior Cash ISA and contributions of £10 per month for Stocks and Shares Junior ISA. Contributions to the Junior ISA limits will be fixed at £3,600 per annum until April 2013 after which they will start to increase each year in line with the Consumer Price Index.
The accounts are available to children born on or after 3rd January 2011, or before 1st September 2002 who missed out on the Child’s Trust Fund (CTF), however, unlike the CTF there is no government contribution. If your child has a CTF then there is no possibility of a Junior ISA nor can you or your child transfer funds from the CTF into a Junior ISA. So that those with CTF don’t miss out, the annual contribution limit for CTF’s will increased to £3,600 from November 2011 to match the Junior ISA limits.
The growth in stocks and shares and the interest on the cash is both capital gains tax and income tax free. The account is opened by the person with parental responsibility for the child however, the child can manage the account from the age of 16. No cash withdrawals are permitted until the child is 18 years of age.
One of the most attractive elements to this tax free savings account is that from the age of 16 the child can not only have a Junior ISA but can also open an adult ISA and the Junior ISA contributions will not impact upon adult ISA subscriptions limits. Two tax free investments for two years! By default the junior ISA becomes an adult ISA at the age of 18 at which time withdrawals are permitted.
This post has been adapted from the Pay Less Tax newsletter, by Deborah Bradley on behalf of the Balance Team.