Kids ISAs, also known as Children’s or Junior ISAs are a great tax-efficient way to save for your children’s future. Launched in November 2011 by the Government, they offer easy tax-free savings and investments. Each child is able to have one Cash ISA and one Stocks and Shares ISA at any time. Transfers are permitted between cash and stocks and shares Junior ISAs, or to another Junior ISA provider.
Kids ISA rules
- The child must not already hold a Children’s Trust Fund (CTF) account but you are able to transfer in to an ISA from a CTF
- The child can have both a Junior Cash ISA and a Junior Stocks and Shares ISA in any given tax year, as long as the total amount invested during the year is no more than the annual allowance
- If the child is under 16 someone with parental responsibility must open the Junior ISA
- Funds in the account will be owned by the child it is opened for and will be locked in until the child reaches 18, the child assumes full responsibility of the account once their 18
- Anyone can contribute to a child’s account at any time up to the annual limit
- All contributions to a Junior ISA are a gift to the young person and cannot be returned to the contributor later if they subsequently change their mind.
Advantages of a Kids ISA
Junior ISAs provide parents, friends and family members with a convenient, tax-efficient way to save for a child’s future. An added advantage is that the money saved in a Junior ISA stays tax-free once the child reaches the age of 18.
Who Can Open a Kids ISA?
One ISA can be opened per child and can be opened by anyone with parental responsibility over the child. Management of the ISA passes to the child when they turn 16. However, funds remain inaccessible until the child turns 18, after which they can either withdraw the funds, or have their account roll over into an adult ISA. The child assumes full responsibility of the money at 18, which could prove problematic if you have a specific savings goal in mind.
What are the Advantages of Kids ISAs?
- Kids ISAs provide parents, friends and family members with a convenient, tax-efficient way to save for a child’s future
- The money saved in a Kids ISA stays tax-free once the child reaches the age of 18
- The money is locked away until the child turns 18
- If you want to save an annual amount for your child that generates over £100 in yearly interest, a Kids ISA ensures that this interest isn’t taxed
Overall, Kids ISAs are a sensible way to start saving for your child. The one potential disadvantage being that the child assumes responsibility of the money once they’re 18 which could be a problem if you had something specific in mind for the savings. In which case, a savings account in your name may be a better option.
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Important Risk Information:
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.