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Category: Savings Date: 5/14/2012
Maybe it's deliberate, maybe it's an oversight, but 16 and 17-year-olds currently get two ISA allowances - £3,600 on a Junior ISA and £5,640 on an adult cash ISA!
That's because they're also allowed to open an adult cash ISA from the age of 16 too. So under the current rules they could squirrel up to £9,240 in ISAs for the 2012-13 tax year!
Your child is eligible to open a Junior ISA if they don't have a Child Trust Fund and are under the age of 18. If your child was a UK resident and born between 1 September 2002 and 2 January 2011 they should be enrolled in the CTF scheme (a CTF will have been opened by the Treasury on their behalf if you did not use the Government voucher sent to you).
ISAs pay interest tax-free. When there is an investment element returns are tax-efficient, although strictly speaking not quite tax-free (you still have to pay a 10% tax credit on any share dividends you receive).
So the obvious advantage for taxpayers is that you can earn more on your savings and investments by virtue of the fact that there's no, or less, tax to pay.
But, most children won't earn enough to pay tax, so what are the advantages?
Of course, your child could already be a taxpayer. Lots of young adults of 16 or over are taxpayers – so having their savings in an ISA means that the taxman doesn't get his hands on this money.
Annual ISA allowance (2012-13 tax year)
£3,600
£5,640
Age account can be opened from
0 – 17 Providing your child doesn't have a Child Trust Fund.
16 Although some providers will only allow a cash ISA to be opened from the age of 18.
Can my child make withdrawals from the ISA?
No Not until they are 18 (although they can manage the ISA from the age of 16).
Yes But remeber that they can only pay in up to £5,640 in the 2012-13 tax year. They can't 'replace' the money they withdraw later.
Will I be taxed on contributions I make to my child/grandchild's ISA?
You won't have to pay any Income Tax on interest your child earns from the ISA (which could be the case with a non-ISA account).
Inheritance Tax – if you pay into your child's Junior ISA and die within seven years, there could be some Inheritance Tax to pay. However, it would be wise to make use of your exemptions to minimise any potential tax burden.
Inheritance Tax – if you pay into your child's cash ISA and die within seven years, there could be some Inheritance Tax to pay. However, it would be wise to make use of your exemptions to minimise any potential tax burden.
Can I make investments in an ISA on behalf of my child?
Yes You can choose to put up to £3,600 (2012-13 tax year) in an investment Junior ISA. If you choose to invest it will mean that you can't deposit as much, or anything, into a cash Junior ISA.
No Your child can open an adult investment ISA from the age of 18.
When does the ISA end?
When your child turns 18. The Junior ISA then becomes an adult ISA.
Your ISA comes to an end when it's closed or on death.
Under current rules Child Trust Fund holders will also be able to open a cash ISA at the age of 16 and have the same dual allowance as Junior ISA holders.
However, the first crop of CTF holders won't be able to make the most of this until late 2018 when they turn 16 (assuming that the Government doesn't close this loophole in the interim).
Compare cash ISAs Search for cash ISAs or Junior ISAs
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.