5 min read 13 Sep 22
Whether it was intended or not, there’s an exciting loophole in the current ISA rules for the under 18s. Right now there’s a window of opportunity during which children can take advantage of both an adult cash ISA allowance and a Junior ISA allowance in the same tax year. Here’s how to make the most of this bumper allowance and help give your child’s savings even more of a boost.
Junior ISAs (or JISAs) offer a tax-efficient way for you, family members and friends to put money away for your children, bit by bit or in one-off contributions. The money can’t be accessed until your child turns 18. JISAs have to be opened by the child’s legal guardian, and the child can have a cash JISA, a stocks and shares JISA, or both. Most providers will let you transfer these between providers too.
One drawback of JISAs is their £9,000 annual limit – it’s quite a bit less than the current adult ISA limit of £20,000. But for many people, bringing up children can mean little disposable income to play with anyway.
Fast forward to their 16th birthday and you might find yourself in a different situation. Early adulthood these days is a costly business, so how can you do more to prepare for your child’s future financial needs and what options do you have?
It might not be a secret, more an understated bonus, as the window for teenagers to take advantage of their bumper double ISA allowance isn’t that widely known. Right now, all 16 and 17 year-olds in the UK can enjoy the benefits of £58,000 tax efficient ISA allowances over two consecutive tax years. That is because they can save £18,000 (£9,000 each year for their JISA allowance) and £40,000 (£20,000 each year for their adult cash ISA allowance).
So if you’re looking to put as much money away as possible before your child turns 18 (and are in the fortunate position to have the funds), it might be wise to take advantage while you can, particularly as ISA rules and allowances can change at any time.
A cash ISA is a savings account that allows you to invest with either a lump sum amount or make regular contributions. Unlike a standard savings account, you won't pay any tax on the interest earned within your cash ISA.
The other main difference between a cash ISA and a standard savings account is that there is a maximum amount you can pay each tax year into a cash ISA.
While a cash ISA is simply a tax-free savings account, a stocks and shares ISA gives your money the opportunity to grow and work harder for you.
They’re essentially tax-free investment accounts that let you put money into a range of different investments. As with any investment, the value can go down as well as up and you might not get back what you put in.
At M&G, we have over 90 years of investment experience and the size and the scale of resource to potentially give your child a head start with their money.
We believe that JISAs could have a key role in every parent or guardian’s long-term financial plan for their children. To find out more about how we can help with your child’s financial future, please visit M&G Junior ISA.
Please note that M&G only offer a stocks and shares ISA and JISA.
Please also note that ISA tax advantages depend on your individual circumstances and that ISA tax rules may change in the future.
Please remember, the value of any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
The views expressed in this article should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.