10 March 2023
With tax year end rapidly approaching, it is important to ensure you have made the most of the allowances available to you before you lose them – and this goes for those available to your children or grandchildren too.
Saving into a Junior ISA (JISA) on behalf of your children or grandchildren is a great way to help gear them up for a more secure financial future, while also ensuring no more of your hard-earned money ends up in the taxman’s pocket than is necessary.
Rachael Griffin, tax and financial planning expert at Quilter, discusses how to make the most of a JISA this tax year end:
“While most people are aware that they can pay £20,000 annually into an ISA, the £9,000 JISA allowance is perhaps not as widely known. This allowance cannot be carried over, so it is important to make the most of it before it is too late.
“Anyone can top up a child’s JISA, not just those with parental responsibility. This means that parents, grandparents, friends or other family members can contribute, as long as the total stays under the annual allowance.
“Naturally, not everyone will be able to maximise the JISA allowance, but even modest top ups could give your child or grandchild an excellent head start in life.”
Reduce your inheritance tax (IHT) bill and boost their financial future
“Saving into a JISA will not only help boost your child or grandchild’s financial future, but it can also help to reduce your IHT bill in the longer term by making use of the gifting allowances available.
“Each tax year you can give up to £3,000 with your annual gifting exemption, or £6,000 as a couple, free of IHT. You can carry any unused annual exemption forward to the next tax year – but only for one tax year.
“This means that if you and your partner did not use your gifting allowance in the 2021/22 tax year, you could gift as much as £12,000 between the two of you this tax year, and can then gift a further £6,000 from 6 April. While the JISA allowance is £9,000 a year, this could be particularly useful if you have more than one child or grandchild.
“In addition, there is no limit on excess income – above normal expenditure – that can be gifted, so it may be worth considering what you are able to put away for your child or grandchild on a more regular basis going forward, as well as how you might make the most of the available JISA allowance ahead of tax year end.”
Make the most of your money by investing
“Savings and investment plans for children tend to be opened in the early years of their life, and the nature of JISAs also means that we can be sure the money is locked up until at least age 18, so they are typically a long-term investment that can benefit from time spent in the stock market.
“The current inflationary environment has illustrated just how quickly cash savings can be eroded, and investing is one of the best ways to help mitigate this. Despite this, the latest government annual savings statistics show that in the 2020-21 tax year, just 29% of JISAs were invested.
“When it comes to long term savings for a child, investing your money will be the best option in terms of ensuring it has the opportunity to grow, so it is worth considering the stocks and shares JISA options available.
“For example, someone who saved the maximum £3,600 into a cash JISA when they first launched in 2011, which grew in line with the Bank of England Base Rate, would have seen their money grow to just £3,864 after 12 years. Comparatively, had the money been invested in a global index fund within a stocks and shares JISA (L&G Global Equity Index) it would have grown to £10,285. If the child’s JISA is currently in cash but they are still relatively young, it could pay to transfer to a stocks and shares JISA as the money could grow significantly more if time is on your side.
“Premium bonds are typically a more a popular gift for grandchildren, but given the length of time JISAs are held, equity investment will likely leave them much better off by the time they reach 18.
“Naturally, if the child is nearly 18 then it is important to assess how much risk you are willing to take as if they plan to withdraw the money straight away then the investments will be more vulnerable to the ups and downs of the stock market.”
Consider transferring a Child Trust Fund to a JISA
“If your child has a Child Trust Fund, it could pay to transfer it to a JISA. As new CTF accounts can no longer be opened, the interest rates offered on cash savings tend not to be anywhere near as competitive as Junior ISAs. What’s more, if the savings are currently in a cash CTF but your child is still relatively young, it is a good idea to transfer instead to a stocks and shares JISA.
“Ultimately, the best course of action will be determined by your individual circumstances, such as the age of the child and how quickly they intend to access the money. Seeking professional financial advice where possible can be very beneficial in terms of supporting your decision making.”
