What the Junior ISA allowance means
Before you start saving or investing for your child’s future, it may be useful to know exactly how much you can put aside tax-free each year. Using this allowance wisely could help you make the most of your child's Junior ISA.
Junior ISAs are popular because they’re a tax-free way of saving or investing for a child’s future and the money is locked away until the child turns 18. But there are certain rules about how much you can put into them each year. The illustration below shows how much you can invest in a Junior ISA for the 2014/15 tax year. This limit is set by the Government and increases annually in line with inflation.
Junior Stocks and Shares ISA
Instead of a Cash Junior ISA, you might decide to use the long-term growth potential of the stock market and put away up to £3,840 in a Junior Stocks and Shares ISA.
Your money will be invested in funds, bonds or individual shares. Like any other stock market investment, the value can go down, however, if they perform well, the value of your investment goes up — with no tax to pay on any profits other than tax on dividends from UK shares.
Junior Cash ISA
As you can see, the current Government rules mean that you can put a total of £3,840 into a Junior ISA for the 2014/15 tax year.
You might want to use all of this allowance in just a Junior Cash ISA. Remember that this works like a regular savings account for your child, with any interest added tax-free. The value can only ever go up, but the potential for growth could be low – especially in times of low interest rates. Tax-free means any interest gained on the savings can’t be touched by the taxman. Please also note that Scottish Friendly do not offer Cash Junior ISAs.
For both Cash and Junior Stocks and Share ISAs, bear in mind that tax treatment depends on individual circumstances and tax law may change in the future.
A Junior Stocks and Shares ISA and a Junior Cash ISA
Because the choice is yours, you can have both a Junior Cash ISA and a Stocks and Shares Junior ISA at the same time. As long as you don’t exceed the £3,840 annual limit, you can split your monthly savings or investments between the two.
So, for example you could invest £1,000 in a Cash Junior ISA and £2,840 in a Stocks and Shares Junior ISA over the course of the year. That way, you could give some of your money access to the long-term growth potential of the stock market while watching your cash grow month-to-month in a Junior Cash ISA.
You should be aware that children can only have one Stocks and Shares Junior ISA with one provider, and one Cash Junior ISA with one provider at any one time. (This is not the same as an adult ISA where you can change providers each tax year.)
You can also transfer a Junior Cash ISA into another Junior Cash ISA or Junior Stock and Shares ISA — but Junior Stocks and Shares ISAs can only be switched to another Junior Stocks and Shares ISA.
No advice has been provided by Scottish Friendly in relation to this plan. If you are in any doubt as to whether this plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.