What is a Junior ISA?
A Junior ISA (or JISA) is a tax-free savings account set up by a parent or guardian for a child of 18 years or below. Anyone can contribute to the account, but only the child can access the money – and only after they turn 18.
Note, that some providers have different rules. For example, at Nutmeg we do not accept JISA applications for children 16 years and over, and only the registered contact may contribute to the account.
The child must live in the UK unless their parent or guardian is a Crown servant (in the UK’s armed forces, diplomatic service or overseas civil service, for example) and they depend upon them for care. Both rules must apply.
The account holder pays no tax on interest, capital growth or dividends on any contributions up to the Junior ISA allowance. The child investment account is essentially an amended version of the adult ISA (more on that here), but with a lower limit and different restrictions on withdrawals.
What types of JISA are there?
There are two types of JISA:
· In a cash Junior ISA, you do not pay tax on interest. Although cash is guaranteed not to fall in value, annual inflation will have an adverse impact on its value.
· In a stocks and shares Junior ISA, you pay no tax on capital growth or dividends. Investments are riskier and may mean growth is greater than a cash product. However, unlike cash, the value of a stocks and shares Junior ISA can go down, as well as up.
At Nutmeg, we offer a stocks and shares JISA.
Can a child have more than one JISA?
A child can have one cash JISA, one stocks and shares JISA, or both.
With Nutmeg, you may only open one pot per JISA, but a parent a guardian may open multiple JISAs, albeit only if they relate to different children.
What is the JISA limit?
As of the 2019-20 tax year, the annual tax allowance or limit for a JISA is £4,368. For any contributions over and above the limit, the excess is held in a savings account in trust for the child. Note, the money cannot be returned to whoever contributes and any excess will be automatically invested in the next tax year.
Your JISA allowance resets at the start of each tax year. The tax year ends on 5th April and your allowance, or any unused portion of it, doesn’t carry over to the next tax year. If you don’t want to lose it, use it.
Who can open a Junior ISA?
Only a parent or legal guardian can open a JISA on behalf of their child, who must reside in the UK, or be a crown servant abroad.
The parent or guardian who opens the JISA is responsible for managing the account and is known as the ‘registered contact’. In all cases, the person who applies for the JISA will become the first registered contact. To open a Nutmeg JISA, the registered contact must contribute a minimum of £100.
Only the ‘registered contact’ can manage the account, and there can only ever be one registered contact at any given time. This person must be 18 years or over. The child may also apply to become the registered contact between the ages of 16 and 18.
The registered contact is the only person who can:
- pay into a Nutmeg JISA
- change the account, e.g. change from cash to stocks and shares or adjust risk levels
- change the account provider
- report changes of circumstances, e.g. change of address
The role of registered contact can be passed to another person with parental responsibility. However, in most instances registered contact status will only be given on agreement with the existing registered contact.
There are exceptions where the prior consent of the existing contact is not needed:
- If the child chooses to become the registered contact between the ages of 16 and 18. Once done, the status cannot be passed to another person.
- If the registered contact dies, cannot be contacted or is incapacitated, the person who assumes parental responsibility for the child must apply to become the registered contact. To do so they must have a Nutmeg account. Note that the Nutmeg account doesn’t need to be funded
- If a Court order means the existing registered contact is no longer the person with parental responsibility for the child
- If a Court appoints a Guardian or a Special Guardian of the child
- If a Court orders that the existing registered contact ceases to be so
- If the new registered contact has adopted the child under an adoption order
Who owns the money in a JISA?
The money in a JISA belongs to the child in all but exceptional circumstances. Please see the HMRC website for more details.
When the child turns 16, they may apply to become the registered contact and manage the JISA themselves. However, they cannot withdraw the money until they’re 18.
Who can contribute to a JISA?
Anyone, including parents, friends and family, can contribute on behalf of the child, provided total contributions fall below the JISA limit. However, at Nutmeg only the registered contact can contribute.
Does contributing to a JISA impact your annual ISA allowance?
Any contributions to a JISA are not factored into your annual ISA allowance.
When can the child access the money?
The child can take control of the account when they’re 16, but cannot access the money until they turn 18. If not withdrawn at age 18, the money rolls into an adult ISA.
Can you have a JISA and a Child Trust Fund?
You cannot have a JISA as well as a Child Trust Fund (CTF). If you want to open a JISA you must transfer the CTF in.
A Child Trust Fund is a long-term tax free savings account for children. The CTF scheme is now closed, so you cannot apply for a new one. But people with existing CTFs can continue to contribute £4,368 a year into them.
What happens to a JISA if the child dies?
If your child is terminally ill you can apply to HMRC to release the funds in the JISA.
If your child dies, any money in the JISA will be paid to whoever inherits their estate.
In the event that the registered contact dies or is incapacitated, the person who assumes parental responsibility for the child must apply to become the registered contact. The consent of the existing registered contact is not needed in this instance.
The information to be supplied is described in more detail by HMRC.