Junior ISA limit confirmed at £3,600
Parents, grandparents, other family members and friends will soon be able to contribute to a new tax-advantaged savings scheme designed especially for children. Junior ISAs will become available from 1 November 2011 and will allow up to £3,600 to be sheltered tax-efficiently.
The government has confirmed that Junior ISA accounts will have the following key features:
Ø All UK resident children under the age of 18 who do not have a Child Trust Fund (CTF) will be eligible for Junior ISAs
Ø Any income or gains will be tax-efficient
Ø Cash and stocks and shares Junior ISAs will be available.
Ø There will be an overarching contribution limit of £3,600 per year which will be indexed by CPI from 6 April 2013 onwards
Ø Accounts will be owned by the child and funds will be locked in until the child turns 18
Ø There will be no government contributions or matched payments into accounts
Ø There will be no stakeholder Junior ISA account
These new accounts will effectively replace Child Trust Funds, where only £1,200 can be invested each year. Money invested within a Junior ISA accounts will by default become adult ISAs on maturity.
Best laid plans
Saving for children has never been more pertinent. With many universities planning to set tuition fees at £9,000 per year, parents are inevitably worried about the financial burdens facing their offspring. Recent research has shown that someone going to university in London in 18 years time could need £73,363* to cover their living costs and tuition fees over a three year period. However, by saving regular amounts from an early age, this figure may not be as out of reach as many may believe.
Starting early
Junior ISAs endorse the idea of saving from as early an age as possible, providing young people with the greatest opportunity to benefit from the long-term performance of the stock market. We also think they will make a valuable contribution to educating youngsters about the importance of saving. Please note that as with all stock market investments, a Junior ISA investing in stocks and shares may not give you back the amount you originally invested.
Investors welcome Junior ISA
Recent research revealed that almost two thirds (59%) of investors told us that the Junior ISA announcement will make them ‘more likely to save for their children’. As a result, the announcement is good news for investors as the government is answering requests for a tax-efficient savings scheme for children.
Until now, it’s been surprising how hard to invest for children in a tax-efficient way. There aren’t many products and the ones that do exist are quite limited in scope. If you wanted to invest in collective investments like mutual funds (and with the long-term investment horizon that a child enjoys, it seems sensible to consider these) then the rules seem designed to make your life difficult. Junior ISA is a step to remedy this situation.
Creating a savings culture
If children are able to watch the value of their savings pot rise, tax-free, year after year during their most impressionable years – how much more likely are they to stick with the savings habit through their cash-strapped twenties and thirties?
The Junior ISA is an important move in the right direction by the government, one which will strongly encourage parents to plan for their children’s future.
Stats
· Based on estimates from the National Union of Students that the cost of living for 2010/2011 will be £11,697. Based on tuition fees of £9,000 per year (tuition fees may rise over time)
About the author: George Pardew is a writer and fan of the junior ISA
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