Setting money aside for your family members, such as children and grandchildren, is a common goal. Giving your loved ones the gift of financial freedom in future can be a hugely rewarding way to use your wealth now.

Meanwhile, making your money as tax-efficient as possible may also be a high priority in 2024. Chancellor Jeremy Hunt announced a range of changes to the UK’s tax regime last year that could see your tax bill increase this year.

Junior ISAs (JISAs) could be an effective solution to both of these goals. These accounts offer you the ability to tax-efficiently save and invest for your children and grandchildren, building a pot that could give them a great start in adult life.

Read on to discover how JISAs work so you can decide whether they’re the right option for you and your family.

JISAs are dedicated accounts that allow you to set money aside for a child

A JISA is essentially a dedicated savings or investment pot specifically for a child. You have the option to save for your child’s future using a Cash JISA, or invest that wealth through a Stocks and Shares JISA.

You can open a JISA and start contributing to the pot from the day your child is born, so you can start setting money aside from the very start of their lives. The account is held in their name, which is why you can only start saving once they have been born and have a date of birth.

Once you have put money into a JISA, you cannot typically withdraw it. Instead, your child can take control of the account and start making decisions at age 16, and start making withdrawals when they turn 18.

This can be a benefit for both you and them. Firstly, it ensures that you build a dedicated pot for their future without being tempted to withdraw from it and use the wealth in the short term.

Furthermore, it prevents your child from accessing the money until they turn 18. This could help to ensure that they use the money wisely for important future goals, such as buying a first car or home.

JISAs offer the potential for tax-efficient growth

One of the most notable benefits of saving and investing through ISAs is that any interest or returns generated are entirely free from Income Tax and Capital Gains Tax (CGT). This is also true for JISAs.

So, if you save in a Cash JISA, any interest accumulated will be entirely free from Income Tax. Any investment returns generated in a Stocks and Shares JISA will be free from CGT.

This can make a significant difference to the wealth you’re setting aside for your child, ensuring that they benefit from what you save or invest for them, rather than seeing it reduced by a tax bill.

JISAs have their own subscription limit

If you already save or invest in an adult ISA of your own, you may well know that there is an annual subscription limit for how much you can contribute to your ISAs each tax year. In 2023/24, this is £20,000, and this limit will remain the same in 2024/25.

Similarly, JISAs also have a contribution limit. This is £9,000 in 2023/24 and 2024/25.

Crucially, though, this JISA allowance is in the name of your child. That means you can make the most of your own ISA allowance, and then save and invest a further £9,000 in their name.

If you were planning to use wealth in an ISA to support your children in future, it could be sensible to do so in a JISA instead. That way, you can still save and invest for your own goals, while also setting aside more tax-efficient wealth in their name.

You can also divide the annual allowance across both types of JISA as you see fit. For example, as the allowance stands at £9,000 in 2023/24 and 2024/25, you could save £4,000 in a Cash JISA and invest £5,000 in a Stocks and Shares JISA in a single tax year.

That way, you can benefit from interest on savings, while also giving some of the money you set aside even greater potential for growth in the markets.

Get in touch

Want to find out more about organising your wealth for the benefit of your loved ones? We can help at Cordiner Wealth.

Email or call 0113 262 1242 to speak to us today.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment 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.