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Junior ISA’s are tax-efficient savings account made for children. With these accounts there is no personal income or capital gains tax to pay on the growth in the account value. Junior ISAs have replaced the Child Trust Fund (CTF) and do not have any money coming into the account from the government. Junior ISAs encourage families to save money for their children’s future. Any money you put into the account is locked away until the child, the saving account has been made for, turns 18 years old.
It is possible to put up to £4,080 into a junior ISA which can be split between; junior cash ISAs or junior stocks & shares ISA. Junior cash ISA is where you are able to put cash into the account with it still being tax-free. Junior stocks and shares ISA returns solely depend on the results of the stocks and shares you have decided to invest in.
Junior ISAs are tax free, however when a child is being given money from each parent or step-parent which amounts to over £100 a year in the non junior ISA savings alone then they will be paid at the parents tax rate. This £100 allowance is for the ‘parent basis’ and not a ‘per child’ basis. From doing this it prevents any parents trying to use their child’s savings accounts as an extra allowance. Once the child begins earning more than this the entire amount is then taxed at the parent’s tax rate. Although, if the parent is still within their personal savings allowance (PSA) and the child has not yet taken the control over the savings account then it will continue to remain tax free. In saying this if the child were to go over this £100 limit and the parent is too over their PSA then the savings can become taxable, therefore by saving it into a junior ISA account it is very beneficial and as mentioned before it is tax free.
As of April 2015 the rules of CTFs and ISAs have changed. Anyone with a CTF is able to convert it into a Junior ISA. This can be seen as very beneficial for some as the rates tend be far worse on CTFs than on Junior ISAs. This is due to many of the banks and building societies now disregarding CTFs and becoming more focused on their best rates on newer junior ISAs. The junior ISA accounts can be monitored and managed using online banking, telephone banking or in branch, where the account can only be opened.
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