What Should We Do About The Children?

With the prospect of long-term debt from university fees hanging over the heads of millions of children, new Junior ISAs are coming onto the market at just the right time for families to plan ahead.

By John Housden

The regulations establishing junior ISAs (JISAs in HM Revenue & Customs (HMRC) jargon) were passed at the end of \july and will come into effect from 1 November 2011. The new plan is available to children under age 18 who were either born after 2 January 2011, or who were not eligible for a Child Trust Fund (CTF), generally, those born before 1 September 2002.

There will be no Government payment into JISAs, unlike CTFs. The maximum investment will be £3600 per tax year, which may be split in any way between a stocks & shares JISA and a cash JISA. A child can hold a maximum of only two JISAs (one of each type) throughout their childhood. Somewhat confusingly, the existing cash ISA provisions for 16 & 17 year olds will continue, so at those ages, a child could have two JISAs and an ‘adult’ cash ISA.

A JISA can be opened by anyone with a parental responsibility for the child concerned, or by children themselves, who are aged at least 16 years. That person becomes the ‘registered contact’ and is able to give instructions for the JISA’s management. There is no access to the JISA cash proceeds before the child’s 18th birthday, the child dies or becomes terminally ill. So, though of little use for school fees planning, JISAs could be handy for higher education.

Any income generated in an ISA that a parent has funded will not be taxable on that parent, even where the income exceeds the £100 limit that normally applies to parental gifts. The HMRC ISA guidance notes have been updated with nine new chapters covering the various administrative aspects of JISAs.

The rule that only one JISA of each type can be held will place a premium on being the first provider, so there may be some interesting inducements appearing in November.

John Housden is an Editorial Consultant for Taxbriefs.