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Junior ISAs – why are they useful?

We look at 4 reasons why Junior ISAs are useful and why you should think about investing in one for a child.

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.

A Junior ISA lets you save or invest for your child free of UK income and capital gains tax. And you can put up to £9,000 in this tax year.

But why are they necessary? After all, unless they’re a child actor, YouTube star or their sweet-selling business has grown rapidly, they’re unlikely to be at risk of paying any tax.

There are however four great reasons to think about a Junior ISA.

This article isn’t personal advice. If you’re not sure whether an investment is right for your child, please seek advice. Tax rules can change, and benefits depend on individual circumstances. Unlike cash, investments can fall as well as rise in value so you could make a loss.

Tax facts - a short guide to your rates and allowances

1. You won’t have to worry about the tax rule of gifting money to children

If you save or invest for your own children outside of an ISA or pension, as soon as it earns interest or dividends of £100 or more, it will be taxed as if it belongs to you. This is meant to stop very wealthy parents using their children as a tax vehicle.

However, if your children have cash savings earning 3.5% or more, it’ll affect you as soon as they have saved over £2,857 in the bank.

Instead by wrapping savings and investments in a Junior ISA, it shelters you from paying more tax than you need to.

2. The money can grow over time

While you might not be worried about tax today, over the long term, any potential returns can really add up and impact your child's future.

Over 18 years these savings could build up gains which are bigger than your child's capital gains tax threshold. Additionally if they’re invested for income, any dividends or interest payments could eat into their tax allowances if they’ve already used their tax-free personal allowance.

Investing through a Junior ISA means you won’t have to worry about how much tax you or your child could end up paying.

3. The money is safe from temptation

It’s possible to access the money in a children’s savings deposit account at any age. And while this flexibility can be useful, it can be tempting to make withdrawals.

Junior ISAs tie up your child’s investments, and keep them out of temptation’s way, so your children can only get hold of it when they turn 18. That gives it more time to grow in value and help give them a better start to adult life.

4. They can be handy for inheritance tax planning

Grandparents can gift money to a child as part of their estate planning, without worrying if it’ll be spent before the child comes of age.

Each tax year you can gift up to £3,000 to anyone you like using the annual exemption, plus any unused exemption from the previous tax year. Or using the small gifts exemption, you can give anyone up to £250 each tax year, provided you haven’t given any other gifts to the same person that year.

Other gifts that fall outside of these allowances could also potentially be exempt from IHT. Find out more in our guide.

Download our guide to saving Inheritance Tax

Want to learn more about Junior ISAs?

Our guide to Junior ISAs

Should you think about investing your child’s money?

Every UK resident child can have a Junior ISA. Anyone can save or invest tax-efficiently for them in the JISA, up to the annual allowance (£9,000 this tax year). A child can have a cash or stocks and shares Junior ISA, or both.

Lots of people tend to opt for cash Junior ISAs. But if you have over 5-10 years before your child plans to use the money, it could be worth considering investing.

Over the longer term, investing money for your child lets you take advantage of the long-term growth potential in the stock market. It could give you a better chance of outperforming inflation and beating any returns you get from just holding cash.

Find out more about investing vs saving

The HL Junior ISA

  • Can be opened with a £100 lump sum or a direct debit starting from £25
  • Once opened by a parent or guardian, anyone can add money to it
  • Has access to a wide variety of investments including funds, shares, ETFs and investment trusts
  • Converts to an HL Stocks and Shares ISA once the child turns 18

Remember, you can’t have both a Junior ISA and a Child Trust Fund (CTF). So if you wanted your child to have a Junior ISA instead, you’d have to transfer the CTF.

Discover the HL Junior ISA

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    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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