The current allowance of £4,368 was expected to increase broadly in line with inflation as it has in previous tax years. As such, the Chancellor’s announcement of such a significant increase was unexpected. JISAs and CTFs provide a tax-efficient method of building up savings for children. Although they do not benefit from upfront tax relief like pensions, the income and growth within them is tax-free and does not affect a parent’s allowances or tax position.
The more cynical among us might note that this has little impact on much needed tax revenues for the government unlike pension allowances. The Chancellor’s next-door neighbours will perhaps also welcome this announcement.
JISAs can be a very effective way of helping children or grandchildren to build up funds which can be used from age 18 (16 for Cash ISAs) for such costs as third level education, property or perhaps what many parents might fear, extended gap years.
The change to the limit is significant but there is also the concern that many parents may have, that if fully funded each year, this could be a large sum of money for a child to have access to at age 18. If one were to fund a JISA for a child who is now aged 1 and continued to do so until age 18, assuming a growth rate after charges of 5%, they could accumulate a fund of around £253,000. This is around £130,000 more than one might accumulate based on the current JISA allowance with the same growth rate. This of course does not take into account the impact of inflation, which would reduce the purchasing power of the monies.
Although the announcement was welcomed, it is unlikely that this will have a significant impact on the population as a whole as most parents do not use the full adult ISA allowance and often do not have available funds to contribute to JISAs.
What should you do?
The standard/adult ISA annual limits and Lifetime ISA limits remain unchanged at £20,000 and £4,000 respectively but parents may wish to consider whether adding to their children’s JISAs/CTFs is worth considering as part of a longer term savings strategy, and perhaps also a way of reducing their potential inheritance tax bill.
Although JISAs offer many advantages, parents who contribute to them should also consider how comfortable they are with children having access to significant sums at a relatively early age. This can of course be something to be monitored on an ongoing basis and funding these sooner rather than later does make good financial sense.
There are other long-term savings, such as pensions, that parents can contribute to for children and benefit from tax relief on contributions up to certain limits. As with any planning, decisions around funding these savings vehicles should be taken in the context of one’s objectives and personal circumstances.
Read more on the Budget here.
The current allowance of £4,368 was expected to increase broadly in line with inflation as it has in previous tax years. As such, the Chancellor’s announcement of such a significant increase was unexpected. JISAs and CTFs provide a tax-efficient method of building up savings for children. Although they do not benefit from upfront tax relief like pensions, the income and growth within them is tax-free and does not affect a parent’s allowances or tax position.
The more cynical among us might note that this has little impact on much needed tax revenues for the government unlike pension allowances. The Chancellor’s next-door neighbours will perhaps also welcome this announcement.
JISAs can be a very effective way of helping children or grandchildren to build up funds which can be used from age 18 (16 for Cash ISAs) for such costs as third level education, property or perhaps what many parents might fear, extended gap years.
The change to the limit is significant but there is also the concern that many parents may have, that if fully funded each year, this could be a large sum of money for a child to have access to at age 18. If one were to fund a JISA for a child who is now aged 1 and continued to do so until age 18, assuming a growth rate after charges of 5%, they could accumulate a fund of around £253,000. This is around £130,000 more than one might accumulate based on the current JISA allowance with the same growth rate. This of course does not take into account the impact of inflation, which would reduce the purchasing power of the monies.
Although the announcement was welcomed, it is unlikely that this will have a significant impact on the population as a whole as most parents do not use the full adult ISA allowance and often do not have available funds to contribute to JISAs.
What should you do?
The standard/adult ISA annual limits and Lifetime ISA limits remain unchanged at £20,000 and £4,000 respectively but parents may wish to consider whether adding to their children’s JISAs/CTFs is worth considering as part of a longer term savings strategy, and perhaps also a way of reducing their potential inheritance tax bill.
Although JISAs offer many advantages, parents who contribute to them should also consider how comfortable they are with children having access to significant sums at a relatively early age. This can of course be something to be monitored on an ongoing basis and funding these sooner rather than later does make good financial sense.
There are other long-term savings, such as pensions, that parents can contribute to for children and benefit from tax relief on contributions up to certain limits. As with any planning, decisions around funding these savings vehicles should be taken in the context of one’s objectives and personal circumstances.
Read more on the Budget here.
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12 March 2020
Financial planning
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