October, 2015

52 Ways To Save Tax #15

Pay less tax

Pay less tax by saving into a Junior ISA

There are lots of different ways to avoid paying tax on your savings. In the past we have looked at saving into an ISA and into your pension but if you have a child under the age of 18 you could also consider a Junior ISA.

Junior ISAs are a form of long-term savings account designed to help you to build up a lump sum for your child when they reach the age of 18. Keep reading to find out more about how you could pay less tax with a Junior ISA.

52 Ways to Save Tax – Part 15 : Save into a Junior ISA

You can save into a Junior ISA if your child if your child lives in the UK, is under the age of 18 and does not already have a Child Trust Fund (CTF). If they do have a CTF you can open a Junior ISA but you must ask the provider to transfer the Child Trust Fund into it.

There are two types of Junior ISA:

  • A cash Junior ISA – this allows you to save into a normal savings account but you won’t pay any tax on the interest you receive
  • A stocks and shares Junior ISA – you invest your money and you don’t pay any tax on any dividends or capital growth that you receive

Your child can have one or both types of Junior ISA.

Remember that while parents/guardians with parental responsibility can open a Junior ISA and manage the account, the money belongs to the child. The child can manage the account themselves from the age of 16 but cannot withdraw the money until they are 18.

Saving into a Junior ISA

Anyone can pay money into a Junior ISA and you will benefit from tax free interest/growth on your savings. And, because anyone can contribute to a Junior ISA, they are useful for building up savings from relatives – for example birthday or Christmas gifts.

As with the adult ISA, there are limits to the amount that you can save every tax year. In the 2015/16 tax year, the maximum you can save in total in a Junior ISA is £4,080. This maximum sum applies to the total ISA savings.

For example, if you have saved £2,000 into a cash Junior ISA in the 2015/16 tax year you will only be able to save a maximum of £2,080 into a stocks and shares Junior ISA in the same tax year.

You can transfer money between your child’s Junior ISAs and between a Child Trust Fund account and a Junior ISA but you can’t move cash between an adult and a Junior ISA.

The benefits of a Junior ISA

There are lots of benefits to saving in a Junior ISA:

  • All interest in a cash Junior ISA is paid tax-free
  • All dividends and capital growth in a stocks and shares Junior ISA is tax free
  • Parents/guardians manage the account but anyone can pay in
  • Child cannot access/withdraw the money until they are 18
  • You can build up a savings nest egg for your child which they can use when they are older
  • You can transfer your Child Trust Fund into a Junior ISA