End of tax year planning: investing for children with a Junior ISA

Rob Morgan outlines the basic considerations when investing for the children in your family.

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  1. Rob Morgan

Whether it is saving for school and university education or to provide a deposit on a first home, giving your children or grandchildren a good start in life is among many people’s top priorities.

First steps

The first decision to make is what you are saving for, and the likely timeframe. This will, to some extent, dictate the type of investment you choose. Investments for children generally have time on their side, so taking on the risk and volatility of the stock market in pursuit of higher returns is worth considering.

Leaving money in cash is the lowest risk approach. It provides little return but it does have the important advantage of keeping capital secure. However, cash is unlikely to grow fast enough to keep up with inflation (the increase in the cost of living), especially over long periods.

The main other types of assets – equities, bonds and property – each have different characteristics, but unlike cash, all can fall as well as rise in value to a greater or lesser extent. History shows that over the long term equities (representing shares in individual companies) are the most volatile asset class but have also provided the best returns. For more see our guide to investing.

Introducing the Junior ISA

Once you have considered which asset class is appropriate for your needs it is time to look at how to invest in it. One option that is notable for its tax-efficiency and flexibility is a Junior ISA.

Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments for a child. The tax benefits are the same as an adult ISA – no capital gains tax, and no further tax to pay on income. Withdrawals are possible from the age of 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house.

A parent or legal guardian of an eligible child can open a Charles Stanley Direct Junior ISA online, manage the account and make the investment decisions. Grandparents, relatives or family friends can then also contribute at any time up to the annual investment limit, which this tax year is £4,368 per child. Please note we only provide Junior Stocks & Shares ISAs and not Cash ISAs.

Junior ISAs are easy to manage and flexible. With the Charles Stanley Direct Junior ISA, you can contribute ad-hoc lump sums or a monthly amount via direct debit of at least £50. There is also a wide investment choice, including thousands of funds, investment trusts, exchange-traded funds (ETFs) and shares.

A child can have a cash JISA, a stocks and shares JISA, or both. However, you cannot have a JISA as well as a Child Trust Fund (CTF). CTFs were the forerunners to Junior ISAs and it is not possible to apply for a new one. However, people with existing CTFs can continue to contribute to them or transfer to a JISA to provide more flexibility. 

If you are not sure where to invest our Foundation Fundlist selected by our research team could provide you with a starting point for your own research. Alternatively, if you would rather be a ‘hands-off’ investor, Charles Stanley’s range of multi asset funds could provide you with a great value, professionally managed portfolio in one easy-to-buy investment.

The earlier the better

Starting early could make a huge difference to the savings your child can accumulate in a Junior ISA, and regular small amounts can add up over time. If parents put away just £100 a month from birth this could result in a sum of £34,920 at age 18 (assuming growth of 5% a year after charges).

Waiting until the child is twelve and investing the current maximum monthly amount of £364 would result in a sum of £30,490 at age 18 assuming the same level of growth. The amount spent on contributions is higher in this instance (£26,208 compared with £21,600), but the end sum is over £4,000 lower owing to the missed years of growth – showing how it can really pay to invest little and often. However, there are no guarantees and investments in Junior ISA accounts can rise and fall, so a child could get back less than invested.

The key benefits of our Stocks & Shares Junior ISA:

  • No set-up costs and competitive charges
  • Easy to manage
  • Flexible – contribute lump sums whenever you want or a monthly amount of £50 or more
  • Wide investment choice
  • Award-winning customer service
  • Transfer in existing Junior ISAs or Child Trust Funds.

Socially responsible investing

Increasingly, people want their investments to do more than make money. Socially responsible investing is an investment approach that considers social and environmental good as well as financial return.

Fortunately, there are ways to marry profit with principles and the variety and scope of these investments has expanded rapidly in recent years. There is also more focus on more positive factors and an alignment of portfolios with targets, for instance in respect to climate change, sustainability and social improvement.

If you are interested in investing a Junior ISA in a socially responsible way, take a look at this educational part of our website.

>>Open a Junior Stocks & Shares ISA

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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