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Could you give your child a £260,000 nest egg?

In the Budget last month, the Chancellor announced a boost for young savers, with the Junior ISA (JISA) allowance set to more than double from 6 April.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Currently every eligible child in the UK under the age of 18 has an annual Junior ISA allowance of £4,368. Any parent or legal guardian can open a Junior ISA for their child. Once opened, grandparents, friends and family can then all add money up to the yearly allowance. The money can be saved into a Cash JISA, invested in a Stocks and Shares JISA, or a combination of the two.

At the start of next tax year, on 6 April, the annual allowance increases to £9,000 – giving parents and grandparents a fantastic opportunity to boost their child or grandchild’s savings.

This article is not personal advice. If unsure please seek advice. Tax rules can change and benefits depend on individual circumstances.

Helping your little one start their investing journey

From saving for university fees, a wedding, or their first home, a JISA is a great way to get your child on the road to becoming a savvy saver. And if you invest in a Junior Stocks and Shares ISA, you can choose from an extensive range of investments and there would be no UK income or capital gains tax to pay on any investment returns.

Remember the money in a JISA can’t normally be accessed until a child reaches the age of 18. At this point, the JISA turns into an adult ISA in their name and they’re free to access the funds as they wish. This can be good, as it means the money is locked away out of temptation’s reach. And if the money is invested, it can allow more time for growth and the potential for higher returns. Unlike the security offered by cash, all investments can fall as well as rise in value so your child could get back less than you invest.

You could build a quarter of a million pound nest egg

If you’re fortunate enough to be able to contribute the new JISA allowance (£9,000) each tax year, from when the child is born to when the child turns 18, your child could have a savings pot of around £260,000 - this is assuming a growth rate of 5% per year after charges.

Graph showing 18 years of maximum Junior ISA contributions, assuming 5% growth after charges

And remember once your child is 18, the JISA turns into an adult ISA, so they can withdraw the money if and when they need to, or they can continue saving and investing - potentially growing the size of their nest egg even more.

The allowance might be rising to £9,000 from 6 April, but there’s still time to use this tax year’s allowance (£4,368).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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