How to invest in a Junior ISA (JISA)

In previous articles, I spoke about ISAs and Lifetime ISAs. If you wish to invest for your child/children, free from UK income tax and capital gains tax, you may wish to consider a Junior ISA (JISA). 

Who can invest in a Junior ISA?

Your child must be both under 18 and living in the UK.

If your child lives outside the UK

Your child is eligible for a Junior ISA if:

• you’re a Crown servant (e.g., in the UK’s armed forces, diplomatic service or overseas civil service) AND
• the child depends on you for care.

Who can open a Junior ISA

It can be opened by anyone who has parental responsibility for an eligible child.

If your child is 16 or 17 years old they can open their own Junior ISA.

Junior ISA Contribution Limit

The limit for the Junior ISA for 2024/2025 is £9,000 per UK tax year (6 April 2024 to 5 April 2025). Unused allowances cannot be brought forward to the following tax year. 

What you can invest in

The JISA can be split between:

a Cash ISA – any interest paid on the cash is free from UK income tax

and/or

Stocks and Shares ISA – any dividends paid are free from UK income tax and any growth in shares are free from UK capital gains tax.

Who can contribute to the fund?

Anyone can contribute to the fund. However, it cannot exceed the £9,000 annual limit.

Additionally, you can transfer money between your child’s Junior ISAs.

You cannot have a Child Trust Fund (CTF) and a Junior ISA. However, you can transfer a CTF account to a Junior ISA. Speak to your Junior ISA provider about this.

Furthermore, you cannot transfer money between a Junior ISA and an adult ISA.

Managing the Junior ISA account

The JISA is in the child’s name.

The parent/guardian who opens the account also manages it and is known as the ‘registered contact’.

If the child is 16 or 17 years old and opens their own JISA then he/she is the registered contact.

Furthermore, the registered contact is the only person who can change the account or account provider and/or report a change of circumstances e.g. a change of address.

Mental Capacity

If your child does not have the mental capacity to manage their money and you live in:

• England and Wales: apply to the Court of Protection for a financial deputyship order.
• Scotland: apply to the Office of the Public Guardian in Scotland.
• Northern Ireland: apply to the Office of Care and Protection.

Who owns the money in the Junior ISA?

The child owns the money in the JISA. Further, at 18+, they can either withdraw the funds, or have their account roll over into an adult ISA.

Exceptions to withdrawal of money from a Junior ISA at 18

Your child is terminally ill

Your child is terminally ill if the child is not expected to live more than 6 months.

If you live in:

England and Wales: you have 6 months from the date of the child’s diagnosis to withdraw money from the JISA.

Northern Ireland: you have 12 months from the date of the child’s diagnosis to withdraw money from the JISA.

Scotland: there is no time restriction regarding withdrawal of money from the child’s JISA.

How to withdraw money

Complete the ‘Child Trust Fund and Junior ISA: terminal illness early access’ form and submit to HM Revenue & Customs (HMRC). HMRC will review the form and then advise you if you can withdraw money from your child’s Junior ISA.

If your child dies

Money from the JISA will be paid to whoever inherits the child’s estate. This is usually the child’s parent(s).

However, if the child was over 16, they may have married or entered a civil partnership. Therefore, it could be the spouse/partner who inherits the proceeds of the JISA.

The JISA needs to be closed so the parent must contact the ISA provider to do this.

Examples of investing in a Junior ISA

You start with zero, invest the full £9,000/UK tax year in a Stocks and Shares JISA for your child:

£750/month @ 7% return for 18 years, you would have just over £317k in the fund.

At this point, Junior, aged 18, could withdraw the amount for say, university fees or to buy a home.

OR

Let’s say Junior rolls the entire £317k fund into an adult Stocks and Shares ISA and invests further per below:

1. Contributes nothing further @ 7% return for 40 years – the ISA will grow to £4.75 million.

2. Contributes £750/month @ 7% return for 40 years- the ISA will grow to £6.6 million.

3. Maxes out the ISA, contributing £1,666.66/month (£20k per year) @ 7% return for 40 years – the ISA will grow to £8.9 million.

Junior ISA Investment Returns

As an example, in this case:

– the starting amount of just over £317k represents 4% of the final amount of £8.9m,

– the further contributions of £20k/year for 40 years represents 9% of the final amount

– the interest of £7.8m represents 87% of the final amount.

This would grow free of UK income and capital gains tax and would also be tax free on withdrawal (assuming the rules stay as they are now).

The Magic of Time and Compound Interest

From a starting point of £750/month, ‘Junior’ could potentially have a fund of almost £9m at aged 58.

Time and compound interest working its magic………

Thanks for reading.

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DISCLAIMER: Inquisitive Finance operates on principles of exchange of knowledge, ideas and opinions and learning in the community. Your decisions are entirely your own responsibility, and I am in no way responsible for your actions. I am not a financial advisor. Whilst I strive to provide accurate and up to date information, I make no warranties or representations as to the accuracy or completeness of this information. Use common sense, do due diligence and where necessary, use the services of a licensed financial advisor, before making any financial decision and/or transaction.