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 currently invest in a Junior ISA for the 2015/16 tax year. This limit is set by the Government and increases annually in line with inflation.
Stocks and Shares Junior 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 £4,080 in a Stocks and Shares Junior ISA.
Your money will be invested in funds, bonds or individual shares. Like other stock market investment if they perform well the value of your investment goes up, but they can also go down and your child could get back less than you've paid in.
Cash Junior ISA
As you can see, the current Government rules mean that you can put a total of £4,080 into a Junior ISA for the 2015/16 tax year.
You might want to use all of this allowance in just a Cash Junior 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.
You can find out more about Cash Junior ISAs and about Junior ISAs in general in What is a Junior ISA?
For both Cash and Stocks & Share Junior ISAs, bear in mind that tax treatment depends on individual circumstances and tax law may change in the future.
A Stocks and Shares Junior ISA and a Cash Junior ISA
Because the choice is yours, your child can have both a Cash Junior ISA and a Stocks and Shares Junior ISA at the same time. As long as you don’t exceed the child's £4,080 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 £3,080 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 Cash Junior 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 New ISA where you can open a new one each tax year.)
You can also transfer a Cash Junior ISA into another Cash Junior ISA or Stocks and Shares Junior ISA — the same is true for transferring a Stocks and Shares Junior ISA too.
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.