Today the government launches the Junior ISA or JISA, the replacement for the Child Trust Fund (athough existing Child Trust Funds will not be affected). These are designed to allow parents to save for their children although unlike the CTF the government won’t be making a starting contribution. The current limit for investing in any one tax year is £3600 for a JISA and parents, grandparents or guardians can make this investment on a child’s behalf. There will be no capital gains tax to pay on the proceeds of the investment and the donor will not incur an income tax liability.
As with an adult ISA you can have a stocks and shares ISA or a cash ISA for your child. It is our view that when investing for 18 years you should not use a cash ISA. In the Barclays Capital Equity Gilt Study 2011 the research shows that over the last 94 years in any period of 18 consecutive years cash beats equities (stocks and shares) only 1% of the time. For more information on building a portfolio check out the following page from our website here. We can advise you and build a portfolio for your child which should perform well over a long period of time however you should remember that the value of your investments could go down as well as up and that past performance is no guarantee of future performance. Should you have any ethical concerns over where your child’s money is invested we can have a conversation around this and recommend a suitable solution.
As with the Child Trust Fund we foresee that the main hurdle for most parents will be the issue of access – once your little angel reaches age 16 they will be entitled to manage the account themselves with full access to the accumulated funds at age 18. This can be seen as an advantage or a disadvantage! It will either teach the child responsibility or fund a very fast lifestyle for a few months! Parents can still utilise part or all of their own annual ISA allowance (currently £10680 per person) to save for their child and maintain full control over when and how that money is spent.
One thing you can be sure of is that should your child wish to go for university in 18 years it will not be cheap! Currently academic fees alone (never mind living expenses) are running at up to £9000 per year so we all need to face up to this and begin saving now.
Right, I must go and set one up now for Daisy!
By David Gibson