ISA: also available for children?
An ISA, acronym that stands for Individual Savings Account, is a tax-efficient investment available to all UK residents who are at least 18 years old. But is it possible to open an ISA for children? Indeed yes, as there are versions of ISAs specifically designed for young people aged under 16.
How to activate a Junior ISA
In practice, it is a parent, or legal guardian, who can open a JISA for a child under the age of 16. This can be done at any age prior to this, thus also for an infant. So, in the course of time it will be possible to prepare a small capital to be used in the future, for study or for the needs of a teenager who grows up and always has new needs, keeping the capital safe from inflation. There are two different types of Junior ISA: Stocks and Shares Junior ISA and Cash Junior ISA; both are suitable for individuals under the age of 16. After the child reaches the age of 18, the money can be moved into an individual’s personal ISA. You can find out more on the Moneyfarm website, to understand the different opportunities available, not only for children but also for adults.
What Junior ISAs are
Junior ISAs work the same as those for adults, with a few substantial differences. The main one concerns the maximum amount that enjoys tax-free status, which is set at £9,000; for adults the limit is £20,000. These are investment accounts, thus the capital raised in a Junior ISA is used by the wealth management to make the most profitable investments possible. The amount deposited in a Junior ISA is tax-free, which may allow for a high annual remuneration. When choosing the JISA type, the parent or legal guardian must consider his or her own availability and also the fact that any investment involves a certain threshold of risk. To give a specific example, Stocks and Shares JISAs may offer a higher theoretical return with a higher risk threshold than a Cash JISA. Remember that a grandparent or a more distant relative cannot activate a JISA, unless he or she is the legal guardian of the child; it is, however, possible for him or her to deposit sums into the child’s account, e.g., as a Christmas present or following a positive school result.
Other opportunities
In the past, it was possible to activate a CTF, namely a Child Trust Fund, but since 2011 this option is no longer available for new openings. Actually, Child Trust Funds exist today, but they were opened before 2011. This kind of opportunity was totally replaced by Junior ISA, which, however, do not enjoy the government subsidies offered for CTFs. It is worth remembering that those who have started a CTF may decide to move the funds in it to a form of JISA of their choice, in order to take advantage of investment conditions that may be more profitable. Both of these types of investments for young people should also be considered as an initial training for children in the prudent use of the cash at their disposal. It is important, however, that parents explain to their children – once they grow – how the investment account works and what opportunities it offers them. In this way, they will be able to make the best use of the JISA when they grow up, to set up a new ISA or to use the gathered capital as they see fit.
