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In a Nutshell - Junior ISAs for under-18s

These spin-offs from ISAs for adults, Jisas, are suitable for saving for your children's future, says Liz Willis

All children born on or after 3 January 2011 are eligible for  a Jisa
All children born on or after 3 January 2011 are eligible for a Jisa

The junior individual savings account (Jisa) is a new savings scheme for children. It was launched by the government on 1 November 2011 and is replacing the Child Trust Fund (CTF) scheme.

All children born on or after 3 January 2011 are eligible for a Jisa. If a child born before this date has a CTF, a Jisa cannot be opened for them.

But children born before CTFs were launched (in September 2002) who are still under 18 years of age are eligible for a Jisa.

An additional attraction is that the Jisa can receive money from multiple sources, such as grandparents, friends and family.

Student debts
An October 2011 survey from Push.co.uk (a website providing advice for students) revealed that starting university in 2012 will leave graduates with an average debt of over £53,000.

Also in October 2011, the Nationwide Building Society reported that the average deposit for first-time homebuyers is now more than £40,000 and the average age at which they get on to the home ownership ladder is 37.

So it is never too early to start saving for your children's future.

Jisas attract the same tax breaks from income and capital gains tax that adults with ISAs enjoy. Assuming an average annual return of 5 per cent, the maximum £300-a-month investment could grow to more than £100,000 over 18 years in today's money so is worth considering. But do note that Jisas' favourable tax treatment could change in future.

A child can have a cash (deposit account) or stocks and shares Jisa - or both. The maximum investment per tax year (running from 6 April in one calendar year to 5 April in the next) is £3,600 - or £300 a month - and it can be split between the two account types. This limit will increase in line with inflation from the 2013/14 tax year onwards.

Pros and cons of Jisas

PROS

  • Can choose between different types of stocks and shares. Jisas (funds which track the whole market), actively managed funds and niche area funds, such as ethical or Sharia law-compliant investments.
  • Anybody can pay into a Jisa (within the investment limit), but withdrawals are not possible until the child is 18.
  • Income or investment returns from a Jisa do not count towards a child's personal tax-free allowance so income or capital gains can roll up free of tax.

CONS

  • Jisas are only available to children who have never been eligible for a CTF.
  • For children under 16, a parent or guardian must open the Jisa (the child can operate the Jisa from age 16).
  • At age 18 the child can withdraw all the money and could go on a spending spree with it (otherwise it automatically converts to an adult ISA).
  • Liz Willis is a financial adviser at the medical division, St James's Place Wealth Management

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