Child Trust Funds (CTFs) are closed to new applicants, but the truth is that you will still have new avenues to saving money for your children. Junior ISAs were introduced in November 2011 so that parents in the UK can save for their children in a method that’s tax-free. However, since this program is so new a lot of parents are still unsure what they need to do, and why they should even get interested in Junior ISAs to begin with.
The Junior ISA (Individual Savings Account) is designed to help you save money tax-free from start to finish. Even if you decide to invest money, you will not have to deal with the dividends becoming taxable.
Anyone can open a Junior ISA on their child’s behalf, as long as their child doesn’t qualify for a Child Trust Fund. So if your child was born July 20, 2002, they would qualify for the Junior ISA. However, if your other child was born September 2003, they would still qualify to get a Child Trust Fund.
Grandparents can deposit money into a Junior ISA on a child’s behalf, but they have to realize that only the parent or legal guardian of the child in question can open the account itself. Transfers work the same way — only the parent or legal guardian can transfer the Junior ISA from one provider to another.
There are some limits to the Junior ISA every year. Right now it’s 3600 pounds every tax year. This is definitely a great idea for people that are really trying to save hard for their child’s future. Tax-free money and growth are two things that you really don’t want to pass up on.
If you are going to have multiple people depositing money into the ISA, you really need to make sure that you keep track of the amounts. You don’t want to go over the ISA limit and have excess money.
Keep in mind that you can have a cash Junior ISA and one investment Junior ISA, but you still only have 3600 pounds per tax year. That’s a hard limit. So if you want to put 2,000 in the cash account, you only have 1600 to put towards the investment portion.
Children also can only hold one cash ISA and one investment ISA — Junior level, of course. It is still possible to transfer savings around between Junior ISA providers, so that you are always getting the best rate possible.
Once your child is 18, the account will automatically turn into a standard adult ISA. Like with CTFs, no money can be withdrawn until age 18. However, at the age of 16, the child can actually manage their own savings.
Now that you know more about this savings scheme, you can make better decisions about your child’s future — check it out today!