The benefits of investing in a Junior ISA on behalf of your children or grandchildren are to become even more attractive.
As a father of two himself, Chancellor Rishi Sunak may well have thought hard about how to help his children financially. Although his first Budget concentrated more on the government’s spending plans than personal financial planning and investment, one of the changes he did make was to increase the annual investment limit on a Junior ISA from £4,368 to £9,000 from 6 April 2020.
This is welcome news for anyone thinking about how they could help a child to save and invest for the future. The tax-efficiency and simplicity of Junior ISAs have contributed to them becoming an increasingly popular way to save for young people over the last few years. In the 2017/18 tax year, the latest for which figures are available, 907,000 new Junior ISA accounts were opened.1
Anyone can contribute to a Junior ISA, although the account must be opened and managed by a parent or guardian. All the funds within a Junior ISA belong to the child and are locked away until the child is 18. At 16, however, the child can take over control of the account, which can be a good way to learn more about savings and investment.
For grandparents or family friends with estate planning needs, using lifetime gifting exemptions to contribute to a Junior ISA is a great way of passing wealth on to younger generations. Another advantage is that you may well live to see how your contributions have made a difference when the child comes of age.
You can either pay a lump sum into a Junior ISA or set up regular contributions, which allows the flexibility to fit in with any other gifting arrangements you may have made.
Saving for a child is not just a kind and generous thing to do: it can provide invaluable practical help for both the child and the parents, such as when a child goes to university. Annual tuition fees, not including the cost of maintenance, are about £9,000 a year in the UK2 – while the average deposit needed by first-time homebuyers is over £46,0003.
Although stocks and shares can go down in value, as we’ve certainly seen in recent weeks, over the long term returns have the potential to be considerably higher than those from cash. With interest rates at historical lows, returns from cash may even be negative once inflation is taken into account. Furthermore, the potentially long lifetime of a Junior ISA creates a real opportunity for compound growth, as investment returns themselves generate a further gain.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Investment in a Junior Stocks & Shares ISA will not provide the security of capital associated with a Junior Cash ISA.
The favourable tax treatment of Junior ISAs may not be maintained in the future and is subject to changes in legislation.
1, HMRC, Individual Savings Account (ISA) statistics, April 2019
2 www.studying-in-uk.org, January 2020
3 Halifax First-Time Buyer Review, January 2020
Mark Lowe Wealth Management
Address: First Floor, 1 Mossley Road, Grasscroft, Oldham, OL4 4HH
Office Number: 0161 338 4659
Mobile Number: 07779 725562
The Partner Practice is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
For more financial advice visit: https://aroundsaddleworth.co.uk/category/business/