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.
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. Your child’s money can be invested in things like shares, bonds, commodities, and property and they won’t pay UK tax on any returns they make, meaning they get to keep more of what they earn.
One major advantage of starting a Junior Stocks and Shares ISA for your child is that nobody, not even you, can dip into their pot. Everything put into the account belongs to them and the money is locked away until they reach their 18th birthday, when they gain full control over their savings.
How to make the most of it?
If you’re investing in a Junior ISA, here are some nifty tips to help you make the most of your child’s Junior Stocks and Shares ISA.
Start when they’re young
Investing as soon as possible after they’re born will give your child’s money the longest chance to grow thanks to the almost magical power of compound returns. Don’t fall into the trap of waiting for the ‘perfect’ time to start investing - it’ll never come. Instead, start today using whatever you can afford, whether it’s £10 or £1,000, and let time do its work.
Don’t forget their annual allowance
If you’re able to, make use of your child’s full tax-free annual ISA allowance of £4,260 a year. You have until midnight on the 5th April each year to use it, or you lose it forever.
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, you need to teach them about money management too. Why not involve them in opening their Junior Stocks and Shares ISA, explain how it works and show them how they can check their investments via the app? This will better prepare them when it comes to managing their own money when they reach 18.
Your child can only have one Junior Stocks and Shares ISA throughout their entire childhood, so make sure you choose a provider that you’re happy with and that achieves good performance for their money. If you’re disappointed with the returns your child is getting, or you’re paying too much in fees, transferring your child’s Junior Stocks & Shares ISA to another provider is an option. 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 maybe 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.
Investing is for everyone.
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.