In the UK, children under the age of 18 can’t hold company shares in their own name, but this doesn’t mean that they can’t enjoy the potential benefits of investing.
Welcome to the world of Junior Stocks and Shares ISAs. Keep reading to find out how they work, why you may want to consider using them, and how to open one.
What is a Junior Stocks and Shares ISA?
A Junior Stocks and Shares ISA could be a great way to plan for your child’s financial future and help them to realise their goals when they become adults.
This is because you can pay in money for your child, and these savings will be invested in things like shares, bonds, commodities, and property, and they won't pay tax on any returns their money makes.
Although there is the risk that your child could get back less than you put in as stock markets go up and down, their money could have the potential to grow further as their returns won't be tied to fixed interest rates like they would in a cash savings account.
One major advantage of starting a Junior Stocks and Shares ISA for your child is that nobody, not even you, can dip into their savings pot. Everything put into the account belongs to them and the money is locked away until they turn 18, as this is when they'll gain full control of their savings and can decide what to do with them.
How to make the most of it
If you’re investing in a Junior ISA, here are some tips to help you make the most of it for your child.
Start when they’re young
Investing as soon as possible after your child is born could give their savings more time to grow. This is thanks to the power of compounding, which is when your money makes returns, and these gains are reinvested back into your investment pot, giving them the opportunity to generate their own returns. As a result, the value of your child's savings pot could potentially get even bigger.
Just think of it like a snowball rolling down a hill, getting bigger and bigger as it picks up more snow.
And you might not want to fall into the trap of waiting for the ‘perfect’ time to start investing. After all, no one can predict when the markets will rise and fall, and it's normal (and be expected) for the value of investments to go up and down over time.
Basically, the longer you stay invested, the more time you could have to ride out market dips.
Don’t forget their annual allowance
If you’re able to, you might want to make use of your child’s ISA allowance. This is how much you can pay into Junior ISAs for each of your children. This is currently set at £9,000 for the 2024/25 tax year, but may be subject to change in future.
Each child can have one Junior Cash ISA and Junior Stocks and Shares ISA, and the allowance can be spread across both types of ISA if you wish.
You have until midnight on the 5th April each year to use this allowance, or you lose it forever. If you have any of your child's JISA allowance left, you can't carry it over into the next tax year.
Teach them good money habits
Investing for your child is all well and good, but if you really want to help them achieve their financial goals, why not try to teach them about money management to?
One way you could do this by involving them in their Junior Stocks and Shares ISA from a young age. As an example, you could explain how investing works and show them how you're able to check how their investments are performing via the app.
Seeing their money potentially grow over time could teach them the value of money, better preparing them when it comes to managing their own finances when they reach 18.
Consider transferring
Although your child can have a Junior Cash ISA and Junior Stocks and Shares ISA, they can only have one Junior Stocks and Shares ISA throughout their entire childhood. So, try to choose a provider that you’re happy with.
If you’re disappointed with the returns your child is getting on their money, or you think you’re paying too much in fees, transferring your child’s Junior Stocks & Shares ISA to another provider is an option.
If you're looking for the best Junior ISA, make sure you do your research. However, one thing to keep in mind when you complete a transfer is that you must always use the official transfer form to retain the tax benefits of your child’s account.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
