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Soon comes round, doesn’t it?
With less than four weeks to go until the big day, many of us will be having a serious think about what we’d like to give our loved ones for Christmas.
If you’ve children, you probably already have a long list, but in this article we’re going to add another idea into the mix: A Junior Stocks & Shares ISA.
Keep on reading to learn about more about how Junior ISAs work, or click on a link to head straight to a specific section…
A Junior Stocks and Shares ISA is a tax-efficient investment account for under 18s.
They’re ‘tax-efficient’ as returns from funds held in a Junior Stocks & Shares ISA are shielded from income and capital gains tax (as is the case with a normal Stocks & Shares ISA).
Because of these big tax benefits, if you’re keen invest on behalf of your child, then doing so in a Junior ISA is probably the best way to go about it.
And while a Junior Stocks & Shares ISA is unlikely to be at the top of your child’s Christmas list, if you use the festive season as an excuse to open an account – even with just a modest sum – then your child could end up with a juicy nest egg once they reach adulthood.
Yes. While a Stocks & Shares Junior ISA must be opened, controlled, and managed by a parent or legal guardian, all of this comes to an end once a child turns 18.
To put it bluntly, while you may hope your Junior Stocks & Shares ISA Christmas pressie will one day go towards university fees, a wedding, or a house deposit, there’s nothing stopping a nonconforming child cashing in their pot on their 18th birthday. And should they wish to squander it all on festival tickets, holidays, or worse, they legally can!
That’s because when a child turns 18, their Junior ISA turns into a normal ISA in their name. This means the money becomes officially theirs.
Yet while this may cause you a worry or two, having a frank and thoughtful chat with your child about the value of money before they turn 18 could go a long way in reducing this risk!
Before we take a look at Junior ISA providers, here are five quick need-to-knows about how these accounts work…
Only parents or legal guardians can set up a Junior ISA for their child. However, friends and family are allowed to contribute once the account is open.
If you, a friend, or family member has the financial means to contribute a large lump sum into a Junior ISA, it’s worth being mindful of the annual Junior ISA allowance.
This refers to the maximum sum that can be put into a Junior ISA within the same tax year. For the current 2023/24 tax year, the allowance is £9,000.
If your child has a Junior ISA then it’s worth knowing that this will automatically transfer to a normal, adult ISA once they turn 18. At this point, the money will also be legally theirs (which we’ve highlighted above)!
If your child is aged 12+ they may already have a Child Trust Fund (CTF). These are essentially now dead accounts, though there are many still in existence.
Children cannot hold both a CTF and a Junior ISA at the same time, though you can transfer a CTF to a Junior ISA. Speak to your provider if this is something you want to do.
While we’re focusing on Junior Stocks & Shares ISAs in this article – you’re in the Money Magpie investing section after all! – it’s worth knowing that there are also Cash ISAs for children.
So if you’ve rather save than invest on behalf of your child, then you can read about Junior Cash ISAs and how they work on the Gov.UK website.
(P.s, if you’re interested in opening a Junior Cash ISA alongside a Junior Stocks & Shares ISA, be aware that the total contribution between both accounts can’t exceed the annual £9,000 allowance)
If you’re looking to open a Stocks & Shares ISA on behalf of your child, you’ll be pleased to know that there are lots of providers out there vying for your business.
Here are a handful of providers that offer Junior Stocks & Shares ISA: (To give you a helping hand we’ve put a main benefit of each provider in brackets, though do explore other options before opening an account…)
And don’t forget, just like with normal ISAs, if you aren’t happy with your provider later down the line you’re free to transfer your account to another platform.
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Disclaimer: When investing, whether for yourself of on your child’s behalf, capital is at risk. Remember, the value of investments can rise and fall. Always do your own research.
MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.