What is a JISA?
If you want to save or invest tax-efficiently for children, then you may want to put some money into a JISA. So, what exactly is a JISA and how do JISAs work?
If you’re thinking of inheritance or passing on wealth to loved ones, then you could consider Junior ISAs (JISAs). JISAs can be a tax-efficient way to pass on wealth to children.
A JISA is a tax-efficient savings or investment vehicle for people under the age of 18. JISA stands for Junior Individual Savings Account and it is a type of ISA. The annual allowance for investing in a JISA is £9,000.
ISAs in general, including JISAs, are often known as ‘wrappers’. Savings or investments held inside an ISA or JISA wrapper are free of income tax, dividend tax and capital gains tax (CGT). But other savings or investments, if they’re not held (or ‘wrapped’) in an ISA, could be taxed. So ISAs (including JISAs) can protect your savings and investments from tax.
It may seem strange to consider tax efficiency for children, but parents are normally liable for tax on savings or investments they set aside for young ones. JISA holdings don’t face these taxes. Although, keep in mind that tax treatment varies by individual and may change over time.
Moreover, JISAs turn into ISAs when the account holder turns 18. So these JISA investments retain their tax efficiency after the account holder reaches adulthood and becomes liable for taxes in the normal way. This transition is automatic, and the child gains full control of the account at that point.
JISAs for children aged below 16 can only be opened by parents or legal guardians, but anyone can pay money into a JISA. Children aged 16 or 17 can open their own JISA and take control of the account, but they can’t usually withdraw money from it until they turn 18.
JISAs are legally owned by the children, even when they don’t have control of the assets. When JISAs become ISAs, the ‘new adults’ can run these new ISA accounts as they wish. Children can’t hold both JISAs and Child Trust Funds at the same time, although assets in a Child Trust Fund can be transferred into a JISA.
Different JISA types
There are currently two types of JISAs:
- Cash JISAs
- Stocks and shares JISAs
You can invest in both of these types of JISA in a single tax year. But the total amount of collective JISA investments can’t exceed £9,000 in any one year and you can only open one of each type of JISA per year.
Cash JISAs
A cash JISA is basically a bank or building society account in which there is no tax charged on interest earned. Cash JISAs can include some National Savings and Investment products or accounts.
Stocks and shares JISAs
These can form a key part of a JISA holder’s investments, due to their tax efficiency and because they typically offer a broad range of investments. Stocks and shares JISAs can contain the following investments:
- Shares in companies listed on an HMRC-recognised stock exchange
- Unit trusts and investment funds
- Corporate bonds
- Government bonds.
It’s important to remember that investments carry risk, and returns aren’t guaranteed.
One thing to note: children aged 16 or 17 can open an adult cash ISA (but not a stocks and shares ISA) and add and withdraw funds from it as they wish. The annual cash ISA allowance for children aged 16 and 17 is up to £20,000. This is in addition to their £9,000 annual JISA allowance.
Managing a JISA
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A JISA is held in the child’s name, but the parent who opens it is responsible for managing the account and is known as the ‘registered contact’. The registered contact is the only person who can:
- change the account, perhaps from a stocks and shares JISA to a cash JISA
- change the account provider.
A child can become the registered contact for their JISA once they reach 16.
Financial planning with JISAs
At SPW, we believe in maximising tax opportunities, where these dovetail with your wider financial planning needs. And two of our key principles are to stay invested in the markets and to invest for the long term. Stocks and shares JISAs can allow young ones to be invested in the markets for the long term in a way that is highly tax-efficient. This makes them a valuable financial planning tool.
ISAs and JISAs can form a key part of tax planning and wider financial planning. You may benefit from speaking with a financial adviser to find out how they can work for you, your family and your unique circumstances. At SPW, one of our key principles is to have regular reviews with a financial adviser. We believe this can help ensure you remain on track to meet your goals tax-efficiently.
Important information
This article is for information purposes only. It is not intended as investment advice.
Fees and charges apply.
Cash savings and investments are protected to the value of £85,000 per person per institution by the Financial Services Compensation Scheme (FSCS).
In preparing this article we have used third party sources which we believe to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents in relation to specific situations and particular circumstances.
