Celebrating your child’s birthday is always a good thing. But you might not be sure of how to really give them a lasting gift. Sure, they might want the latest clothes, shoes, and the flashiest tablet. But those gifts fade over time. If you want to give them something that will benefit them as adults, now is the time to give your child a Junior ISA for their birthday.
Why give them such an account? Well, we need to dig a little bit into why ISAs are so awesome. ISA stands for Individual Savings Account, and the one designed for children is known as a Junior ISA. In order to get one, they must live in the UK and they also have to be under 18. Once they turn 18, they will have to get a regular ISA.
What if you or your parents set up a Child Trust Fund in the past for your child? Then you need to have the trust funds transferred into the Junior ISA. Don’t worry, the new ISA scheme is actually better in the long run.
Like the regular ISA, the Junior version can be broken down into two types: the cash J-ISA and the stocks and shares version. You will most likely open a cash Junior ISA, but you can also open up the second variety as well. It’s completely fine to mix and match. The cash one is designed to keep you from paying tax on the interest generated from the account.
As the parent, you will be able to open the account and manage the account, but you have to realize that the money belongs to the child. Since this is their birthday gift, you can explain to them how you will deposit money into the account on a small schedule. It doesn’t have to be a lot of money, just enough for them to start learning how accounts work. Later on, this could inspire them to continue putting money into the account. Considering the tax-shielding power of Junior ISAs and their regular counterparts, it would be a good idea for them to continue forward.
While it’s true that the child can take over the account at age 16, they’re going to have to wait two additional years in order to withdraw any money. For the child going off to university, a Junior ISA can be a really good thing.
The whole family can make deposits into the Junior ISA, but you have to be careful here: at the time of this writing, you can only put in a total of 4080 GBP. It goes up every tax year, based on inflation. You also cannot transfer money from your regular adult ISA back into the Junior ISA. You will need to manage the account. When you open the account up for them, you’ll be the registered contact. This is a very important position, because they are the only one that can change the account type, the provider, or handle changes like address and phone number changes. If there are information updates needed, you will need to contact the actual provider for the account immediately. Up to date information is critical at all times.
Will your child appreciate this gift? Maybe not as much as a pair of shoes, but that doesn’t mean that they won’t come to see the wisdom of the gift you gave them. Make sure that you’re aware of all of the pros and cons, and then take action. The Junior ISA is a functional gift that can turn into a lot of money over time!