Opening a Junior ISA (JISA) on behalf of your child is a fantastic way to ensure they have a solid financial future, whether the money is for further education, travelling, buying a car, or buying their own home.
There are two types of JISAs you might have invested in for your child: a Cash ISA or a Stocks and Shares ISA. The funds in either of these legally belong to your child, but they can only take control of the JISA account once they’re 16, and additionally, they can only withdraw the money on the day of their 18th birthday.
If you’ve got a child who’s just turned 18 or is about to reach that milestone, it’s a good idea to start talking to them about saving and, specifically, what they want to do with the money in their JISA.
It’s important to note that when your child turns 18, their JISA will “mature” and automatically become an adult ISA. This means they become the Registered Contact, and money will become available for them to move or withdraw, with or without your consent.
If you don’t want your child to withdraw the money too early and waste it on the wrong things, the only thing you can do is speak to them about their options. This article will explore three of your child’s options for their JISA once they turn 18.
Lifetime ISA
All UK residents aged between 18 and 39 can open a Lifetime ISA. So, you could speak to your child about opening a cash or stocks and shares Lifetime ISA.
However, they can only invest up to £4,000 each year, so depending on the amount in their JISA, they may have to move some money each year after they turn 18. In addition, they will receive a 25% bonus worth up to £1,000 from the government each year.
They will not be able to access the money in their Lifetime ISA until they buy their own home or until they turn 60. They’ll pay a 25% withdrawal charge for unauthorised withdrawals, which removes the government bonus they received.
That means it only makes sense to choose a Lifetime ISA if they are fully committed to using that money to buy their first home. However, if they have enough money in their JISA, they could spread it between a Lifetime ISA and another option.
It’s important to note that when your child turns 50, they cannot pay into their Lifetime ISA or earn the 25% bonus. However, if they are yet to buy their first home, the account stays open and the savings still earn interest or investment returns.
Pension Scheme
When you began investing in an ISA for your kids, you’d be forgiven for not thinking about their retirement so soon. However, with State Pension payments not being enough to live on, according to some analysts, you should consider talking to them about investing some or all their ISA funds into a personal pension scheme so they can enjoy their golden years.
You will get tax relief on money you pay into a pension plan. There are different types of personal pensions, sometimes known as defined contribution pensions, including:
- Stakeholder pensions: The money you invest buys a pension from a pension provider.
- Self-invested personal pensions (SIPPs): These allow you to control the investments that make up your pension pot.
Stocks and Shares ISA
Stocks and Shares ISAs allow you to invest in unit trusts, investment trusts, exchange-traded funds, individual stocks and shares, corporate and government bonds, or open-ended investment companies (OECIs).
You don’t have to pay capital gains tax or income tax on the money you earn from your investments. However, the value of investments can fall or rise, so you may not get back what you invest.
The annual ISA allowance in the 2024/2025 tax year is £20,000. For example, if you are already putting £4,000 a year into your Lifetime ISA, you can only invest £16,000 into a Stocks and Shares ISA.
A Stocks and Shares ISA is seen as a medium to long-term commitment, so before your child begins investing money, they must learn the basics and understand the risks.
Does Your Child Know Their Options?
While the funds in your child’s ISA account become theirs at age 18, there are ways you can speak to your child about spending the money wisely. Consider talking to them about investing at least money into their future, even if they want to withdraw some to enjoy student life at university or buy a car.
