There are a number of ways to save or invest for children – some accounts are tax-efficient but rigid, others are often flexible but liable to tax. Interest earned from Child Trust Funds (CTFs) and Junior ISAs is paid tax-free but the money is effectively locked in until the child is 18, at which time it belongs to the child. Standard savings accounts usually offer lower interest rates and the interest is likely to be taxable but there will be flexibility on withdrawals and transfers, enabling the parent to keep a tight rein on the money.
Junior ISAs operate in much the same way as ordinary ‘adult’ ISAs. The maximum investment limit for 2015/16 is £4,080 so there is a real opportunity for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren. Until April 2015 it was only possible for children who did hold CTFs to invest in Junior ISAs, which meant that many young savers were trapped in accounts yielding poor interest rates. From April 2015 all children (under-18s) who are UK resident should be able to hold a Junior ISA and transfers from CTF accounts to Junior ISAs will be allowed.
This change is important as it allows parents to look for a better return on their investment, pay lower charges and have more choice of products.
