Am thinking of setting up a Junior ISA

I’m thinking of starting a junior ISA for an imminent arrival in our household - good to be prepared! :grinning:
It would be great to hear your thoughts on junior ISA’s, do you have one, if so what was your experience, would you like to set one up?

1 Like

There are a lot of benefits to setting up a JISA. Even though the limit is a lot lower, it is still a significant sum. I can’t remember the exact stats but remember reading the average amount someone puts in their full ISA is less than the junior allowance anyway.

Given the child’s age it is arguably the time that a person can take the most risk in their life, with their investments, as any drops in the market don’t matter so much. So opt for a stocks and shares ISA rather than cash and one where you can take maximum risk. Some JISAs are obviously limited in the risk you can take. The compound effects over 18 years, especially with additional top-ups will have a massive effect and could pay for both uni and a decent deposit on a house!

They also help you get avoid the parent tax rule, where if any profit on savings in your kids name is over £100, YOU get taxed on the whole lot!

However there are a few caveats. They get control over the investment choices from 16. This is risky although maybe an incentive to teach them about investing as early as possible. Also they will be able to get cash ISAs at 16 and 17, giving them a bigger total ISA allowance than us!

Also be aware that the money is theirs from the age of 18 to do whatever they want with it! You can’t control what they spend it on. So be prepared for that… Again, an incentive to teach them about money early on.

There is no tax benefit or relief on the money on the way (standard issue for ISAs except the lifetime ISA).

If you have more kids later on, can you afford to match the contributions? If you pick a favourite kid, this would be easier to manage!

If you want to contribute to your child’s long-term future and don’t want them to have access until they are responsible, you can always set a pension up for them, which will gain tax relief on the way in, will have slightly smaller contribution limits and a lot longer to compound! Although they won’t be able to access it until much later in life, despite probably needing it earlier!

2 Likes

I have a different structure, I use an off-shore bond. Offshore gives me lower charges then if it where based in the U.K., although it’s still fully tax compliant as it is in the U.K.

The bond structure makes it easy to manage, but also gives “top slicing”, so when I am retired I can gift 5% of its total value to my children every single year with zero tax implications. Don’t even have to pay tax on capital gains.

I have a trust wrapped around it, so unlike a child ISA my wife and I administer it on behalf of our children, who cannot access it unless both of us were to die. Therefore, we decide when and what they get, rather then our four boys blasting it on sex, drugs and women. :slight_smile:

3 Likes

This is what I tell most people who say “I am leaving my kids nothing but the shirts on their backs because I don’t know how they are going to spend the largess they get”. Education is key with regards to ensuring a trust is not depleted on things that the one benefiting considers “important” :rofl::rofl::rofl::rofl:.

1 Like

That’s the thing with my trust though, it’s in their name but say wife and I are the trustees we have full day over what they get and when - ie get them through university, on the property ladder, and then bits and pieces here and there. It’s basically to set them up for life.

2 Likes

You are a great dad!

1 Like

@Martijn, I’m sure this works for you, but I think the tax complexities and potential pitfalls of using an offshore bond and one that is wrapped in a trust (discretionary I presume?) is probably beyond what most people would understand or want to have to deal with.

There are usually still tax implications on the roll-up minus the 20x 5% top-slicing of the original value and then further complications with the tax calculations within the trust and with non-original capital distributions as well as potential inheritance tax issues too. Most people would probably need or want at least a lawyer to set the trust up and then an accountant to file the tax returns, all adding to the costs.

I imagine the junior ISA structure is probably a lot more suited to people’s skills, need for simplicity, lower budgets and tax shelter requirements. Unless of course you want to invest significant sums for your children’s futures, then over a certain amount a trust structure is far more attractive if the investment gains outweigh the costs. Personally I’m not a fan of offshore bonds, but probably more of a preference thing (and a concern that future tax rules brought in to close loopholes are becoming more retrospective in nature!)

My wife and I are opting not to have kids so we can waste our money on ourselves, instead of risking any kids wasting our money for us! It’s much more enjoyable :wink:

Totally agree, was just illustrating my situation as an alternative, but for most people a junior ISA is a simpler option.

I chose to go down this route as I am investing significantly more into my kids’ future than the average person and would have breached the threshold of the junior ISA.

Having said that, it’s not a complex structure. “Offshore” does not imply tax avoidance or loopholes, mine is in Ireland as a matter of fact and fully tax transparent and compliant. It’s just that offshore gives me lower charges than with U.K. bonds and, as we all know, charges are a major contributor to the performance of a portfolio due to their compounding nature.

Neither is it more complex from a tax perspective, although I have an IFA to help me so I am in an advantageous position.

The purpose of my post was that a junior ISA may he good for most, but if you are somewhat better off it may not necessarily be the case.

Sure, I totally understand and if you are in the position to be able to provide above the JISA limits for your children, a trust structure is definitely worth considering if the returns if the underlying investment outweigh the costs! Retaining that control (which you don’t get with a JISA) is also very important for a lot of people too and often worth considering for that aspect alone!

1 Like