Leon Blake
Providing your child or grandchild with a solid start in life might be one of your main financial goals. If so, you’ll want the foundation of their future wealth to be tax-efficient and you might opt for a Junior ISA (JISA).
While subscription limits determine how much you can contribute in a given tax year, the potential for investment growth – in a Stocks and Shares product – means that your child could amass considerable funds before they reach adulthood.
In fact, a recent Freedom of Information request submitted to HMRC (and reported by interactive investor) has revealed the true scale of the JISA’s potential.
The figures confirm that the UK’s 50 largest JISAs hold an average of £761,000. This is a huge figure that could see your child or grandchild well on their way to becoming an ISA millionaire, possibly even in their 20s.
Keep reading to find out more.
If you’re looking for a tax-efficient way to provide for your child or grandchild you might already have a JISA
Building an early nest egg for a loved one can help to teach them valuable money lessons, as well as potentially providing the wealth to:
- Fund a gap year
- Help them through higher education
- Secure a deposit for a first home.
As with adult ISAs, JISAs have Cash, and Stocks and Shares varieties. They also share certain tax efficiencies and have their own annual subscription limit: the JISA Allowance.
A JISA can be opened from birth up to age 16, by a child’s parent or legal guardian and children aged 16 and 17 can open their own accounts. Anyone can then contribute to the JISA on that child’s behalf. Your child or grandchild can begin to take control of their account from age 16 and take money out from 18.
By this age, your child should have sufficient financial literacy to make the wisest choice with their fund, but you’ll be on hand to offer guidance too.
The JISA subscription limit currently stands at £9,000 and the chancellor, Rachel Reeves, used her Autumn Budget 2024 to freeze this limit until at least 2030. Throughout an 18-year investment, maxing this limit could see your child’s JISA grow significantly.
JISAs provide the chance for tax-efficient growth over a known term
You can open one Cash and one Stocks and Shares JISA on your child’s behalf and split the annual JISA Allowance across the JISAs your child holds.
Both are tax-efficient. There’s no tax to pay on interest earned in a Cash JISA, while gains in a Stocks and Shares JISA are free of both Income Tax and Capital Gains Tax (CGT).
HMRC data confirms that the 50 biggest JISAs in the UK hold an average of £761,000. What’s more, 370 JISAs have funds exceeding £200,000, while 2,000 hold more than £100,000.
interactive investor figures suggest that a JISA worth £761,000, achieving 5% annual returns net of charges, could see the holder become an ISA millionaire before the age of 24.
It’s worth remembering too that the JISA limit means that these huge funds didn’t grow from a single, large contribution and 18 years of compound growth. These funds have been accrued from a maximum investment of just £9,000 a year.
This amount would give your child incredible financial stability, potentially helping them straight onto the housing ladder and paying their way through university. Of course, though, the investment strategy you choose must always be aligned with your risk profile and capacity for loss.
Stocks and Shares and Cash JISAs continue to be popular
Data from 2021/22 shows that around 1.2 million JISAs were taken out during that tax year. This marked a JISA record, with total assets held topping £9 billion.
The split between Cash and Stocks and Shares JISAs wasn’t even, with:
- 737,000 Cash JISAs
- 475,000 Stock and Shares JISAs.
There are other ways to build a nest egg for your child or grandchild, but the JISA’s tax efficiencies might mean it’s worth considering for those in the highest tax bracket.
You might opt to make tax-efficient contributions to your child’s JISA using HMRC’s regular gifts from income exemption. This could help you to teach your child about the value of regular saving and investing, providing the valuable insight they’ll need to manage their account when they reach 18 and it converts to a full ISA.
If you want more control over how the nest egg is spent, a JISA might not be the right option for you. In which case, we can talk to you about possible alternatives, including trusts.
Get in touch
To find out how we can help you build a tax-efficient nest egg for your child or grandchild, please do get in touch.
Contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
