Junior ISA loophole for 16 and 17-year-olds! - Savings - Money Tips - Moneyfacts.co.uk

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Junior ISA loophole for 16 and 17-year-olds!

Junior ISA loophole for 16 and 17-year-olds!

Category: Savings

Updated: 06/04/2016
First Published: 13/04/2015

Maybe it's deliberate, maybe it's an oversight, but 16 and 17-year-olds currently get two ISA allowances - £4,080 in a Junior ISA and £15,240 in 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 away up to £19,320 in ISAs for the 2015-16 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 is 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). However, from April 2015, Child Trust Funds can be transferred to Junior ISAs.

Why an ISA over a normal children's savings account?

ISAs pay interest tax-free. When there is an investment element, returns are also tax-free, although you don't earn interest on these - growth is by way of improvement in share prices and payment of dividends.

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 tax to pay.

When your child becomes a taxpayer or they earn over their Personal Savings Allowance, their savings interest may get taxed . So by putting it in an ISA, a child's savings pot is already shielded from paying tax.

Junior ISAs can't be accessed until your child turns 18, so they will only have access to their cash at an important time in their lives – to help get through university or to start driving, for example.

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.

Junior ISAs and cash ISAs: key differences


Junior ISA Adult Cash ISA

Annual ISA allowance
(2015-16 tax year)

£4,080

£15,240

Age account can be opened from

0 – 17
Providing your child doesn't have a Child Trust Fund. (You can now transfer old Child Trust Funds to Junior ISAs if you wish).

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 remember that they can only pay in up to £15,240 in the 2016-17 tax year.

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.

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 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 £4,080 (2016-17 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.

If you are in any way unsure of the tax treatment of you or your estate if you deposit on behalf of a child, you should seek independent advice.

Child Trust Fund holders won't miss out if rules stay the same

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).

What next?

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 any time.

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