A boost for Children’s Savings by Curtis Parker
Posted on November 25, 2016
The Chancellor, Philip Hammond, has earlier this week (23 November 2016) announced an increase in the Junior ISA limit from 6 April 2017. The subscription limit usually increases each year in line with Consumer Price Index (CPI) and will rise from £4,080 to £4,128.
Since Junior ISAs or JISAs were introduced back in November 2011, over 2 million accounts have been opened and last tax year saw over 738,000 accounts opened and £921m subscribed, according to Treasury figures.
Why a Junior ISA?
Junior ISAs are long term tax-efficient savings for children that were introduced by the Government to replace the Child Trust Fund and to encourage parents to start saving for their children’s future.
There are two types available – cash and stocks and shares and a child can hold both types at any one time providing the annual subscription limit isn’t exceeded. Whilst the account has to be opened by the child’s parent or guardian, anyone can pay in and the returns received by the child on maturity will be paid tax-free.*
Cash or stocks & shares?
According to Treasury figures, 60% of parents who took out a Junior ISA in the 2015/16 tax year chose cash over stocks and shares. Banks and building societies tend to offer better rates on children’s savings accounts, including junior ISAs, when compared to interest rates offered on adult cash ISAs.
However, stocks and shares junior ISAs should not be overlooked as the stock market has historically out-performed cash savings over the long term. If you have a cautious approach to investing you can still consider some types of stocks and shares Junior ISAs. Sheffield Mutual’s Investment Junior ISA is classed as stocks and shares but we use a process known as ‘smoothing’ where we iron out the ups-and-downs often associated with investing so it could suit parents who have a cautious approach to investing.
My child has a Child Trust Fund, can they have a Junior ISA?
If your child was born between 1 September 2002 and 2 January 2011, you would have received a voucher from the government to open a Child Trust Fund account. If you didn’t open an account, the government will have done so on your behalf and you can find out where you child’s account is held at http://www.hmrc.gov.uk/tools/childtrustfundclaim/ctfaccount.htm.
If your child has a CTF they cannot have a Junior ISA, but you can now easily transfer a CTF account to a Junior ISA if you’re unhappy with the performance or wish to take advantage of the greater choice available in the Junior ISA market.
This blog provides generic information and opinions of the writer and should not be relied upon for making investment decisions. No advice has been provided by Sheffield Mutual. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should consider contacting 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 or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand. Any reference to taxation is based on the writer’s understanding of current tax legislation and practice, which could change in the future.
* This is based on our current understanding of tax legislation, which may vary in the future.
12/09/2016 Was your child born in the UK between 1st September 2002 and 2nd January 2011? If so, you should read this...
If your child was born between the dates above, the likelihood is that they have a pot of money sitting in a Child Trust Fund (CTF) account somewhere.
The Government allocated between £50 and £250 (up to £500 for low income families) as an initial deposit (depending on your child's date of birth) and in some cases even made further top-up payments at age 7. So, there could be a pot of over £1,000 waiting for your child, without you even knowing about it!
There are lots of parents out there who are not aware about their child's government funded CTF.
Initially the government issued vouchers to parents to let them have their own choice of where to set them up, in many cases they were received but forgotten about and in some cases due to change of circumstances people didn't receive the original communication at all. In these cases, so the child didn't miss out on their allowance, the Government decided to open the policies for them and these accounts were allocated to a selected panel of providers all over the UK, including Sheffield Mutual.
Whilst the Government contributions have now ceased, the policies still remain in force and will do so until they mature when the child reaches age 18. Currently (as at 07/09/2016) you can contribute up to £4,080 in-between each birthday for your child so you have the potential to build up quite a nice tax-free* lump sum for their 18th birthday.
If you don't know where your child's CTF is held,you can find out by submitting your details here:- http://www.hmrc.gov.uk/tools/childtrustfundclaim/ctfaccount.htm
If you locate your child's CTF but aren't happy with where it has been placed, you can transfer to another CTF provider or, you can now also transfer to a Junior ISA (JISA). Sheffield Mutual accepts both CTF to JISA / CTF to CTF transfers and you can find out more here :- http://www.sheffieldmutual.com/childrens-savings
This blog provides generic information and opinions of the writer and should not be relied upon for making investment decisions. No advice has been provided by Sheffield Mutual. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should consider contacting 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 or www.vouchedfor.co.uk . Advisers may charge for providing such advice and should confirm any costs beforehand. *Any reference to taxation is based on the writer’s understanding of current tax legislation and practice, which could change in the future.