JUNIOR ISAS

WE ALL WANT our children and our grandchildren to get the best start in life and you can do this tax efficiently by investing in a Junior Isa, a tax-free savings account for the under-18s. Friends and family can save or invest up to £4,128 in the current tax year in either a Junior Cash Isa or a Junior Stocks and Shares Isa.

Interest rates on Junior Cash Isas are better than on standard Isas, for example, Coventry pays 3.50 per cent, followed by Nationwide at 3.25 per cent and Tesco at 3.15 per cent. Halifax, TSB and Darlington Building Society pay 3 per cent, all on a minimum investment of £1.

Christy Morrison, head of wealth planning at WHIreland, says the Junior Isa should be a first priority for any investments parents make on behalf of their children.

“Although there is usually no tax to pay on children’s savings, if a child gets more than £100 of interest on money given by a parent, the parent will have to pay tax on all the interest if it exceeds their own personal savings allowance.”

The £100 limit does not apply to money given by grandparents, relatives or friends.

Children have time on their side and a Stocks and Shares Junior Isa should prove more rewarding than cash in the longer run, Morrison says. “If you are saving towards a set target, such as university costs or their first home, you could take more risks in the early years, then perhaps reduce their risk by switching more money into cash nearer the withdrawal date.” A number of providers offer Junior Stocks and Shares Isas, including Charles Stanley, Fidelity, Hargreaves Lansdown, Interactive Investor, OneFamily, ScottishFriendly and Shepherds Friendly.

Rules vary but you can typically start with lump sums from as little as £500, or regular investments from between £10 and £50 a month.

Christopher Pyrkosz, head of investment trust marketing at Martin Currie, says stocks and shares should deliver a superior return in the longer run. “If 18 years ago you had invested £20 a month in a spread of global stocks, today that would be worth more than £9,520, compared to just £4,284 in the average cash account.”

Tom Stevenson, investment director at Fidelity International, says with the average house deposit for a first-time buyer now more than £20,000 and university tuition fees totalling £27,750, children need all the help they can get.

“It’s never too early for parents to start saving for their offspring.” By saving as little as £70 a month into a Junior Isa you could build a savings pot worth £21,535 by their 18th birthday, assuming 5 per cent annual growth after charges “This is enough money to cover the deposit on their first property,” Stevenson says.

Someone wealthy enough able to invest the full allowance by paying in £344 a month would give their child £106,600.

At age 18 the pot belongs to the child, so you need to be sure you can trust them with money.

In a strange quirk of the rules, children aged 16 and 17 can claim both a £20,000 adult Cash Isa plus their Junior Isa allowance. Child’s play!