Misconceptions About The Junior Isa

The Junior ISA was introduced in the autumn of 2011 as a tax efficient way for parents to save money for their childs future

. Parents can pay in money to their childs Junior ISA account on their behalf until their child turns 18. Currently parents can pay in up to 3,600 in every tax year tax-free. Once your child turns 18 the Junior ISA account will automatically switch to an adult ISA and your child can choose to do what they want with the money saved. There are, however, a number of misconceptions about the Junior ISA that continue to persist.

Your child can have more than one JISA

Though you are able to have a number of adult ISA accounts with different providers, this is not the case with Junior ISAs. You can only have one JISA at a time. If you wish to change providers you will have to transfer your funds fully before you can deposit any more money. However, your child can have a Junior ISA account and a Junior Stocks and Shares ISA simultaneously. This gives the opportunity to save money and gain interest in one account and make investments that may make a profit in another. The maximum limit does however apply to both accounts. You cannot put 3,600 in your childs JISA and make 3,600 worth of investments in a Stocks and Shares ISA. You can only put in 3,600 in total. The situation changes slightly when your child reaches 16. Once they are 16 they can have both a Junior ISA and an adult ISA account at the same time. This means that their tax-free allowance will go up for the year 2012 they can invest 8,940 tax free.

The maximum limit of 3,600 will stay the same

For the year 2011/2012, parents can pay in up to 3,600 to a Junior ISA every tax year. However, as the JISA is considered a long term investment it would not be right for the maximum limit to stay the same for the next however many years. The starting point for JISA maximum allowances is 3,600 but every year the limit will rise according to inflation rates. This means that the amount you can put in will not lose value and will be equivalent in terms of worth to the previous year.

All children are eligible for a Junior ISA

You may assume that a child ISA would be available to all children but unfortunately this is not the case. In 2005 the government launched Child Trust Funds; this was a scheme not unlike the Junior ISA. All children that were born after 1st September 2002 but before 1st January 2011 were eligible for a Child Trust Fund. The government gave out 250 vouchers to every child which their parents could then invest in a Child Trust Fund. If your child already has a Child Trust Fund or they were born between September 2002 and January 2011 they are not eligible for a Junior ISA as they are already under the Child Trust Fund scheme. Even if you did not invest the 250 voucher into a Child Trust Fund, after a certain period of time the government would automatically invest the voucher on your childs behalf.

You can change a Child Trust Fund into a JISA

If your child falls under the Child Trust Fund scheme they cannot change the account into a Junior ISA. Children can only have a Junior ISA if they were born before September 2002 or after January 2011. Many parents have expressed anger at this fact because many providers will offer better rates of interest for the newer Junior ISAs while many Child Trust Funds (which are supposed to be much the same thing) have not changed in accordance with inflation.

Your child can only access their account when they turn 18

This is partly true as money can only be withdrawn from the account by your child when they turn 18. Before that you will not be able to withdraw any money on behalf of your child. However, when your child turns 16 they will be able to manage their own account and can choose how to invest money. When it comes to paying money in, it is not just parents who can make deposits, anyone from family members to family friends can put money into a JISA on behalf of a child. Only parents and legal guardians can set up a JISA for a child but once it is set up anyone can deposit money. Many people find that Junior ISAs can be useful when it comes to birthdays or Christmas.

by: Izzy Evans

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