By Ameet Magan
Most parents want to give their children a helping hand in life, and many choose to open savings accounts for their children – so they can have a solid financial foundation to build upon in adult life.
The recently launched Junior ISA has been designed to appeal to savings minded parents, and does allow up to £3,600 to be saved tax free every year.
However, children’s savings are not always exempt from tax, and their tax free savings limit for this financial year is £7,475, which is the same as any adult aged eighteen to sixty five.
Parents saving into an account for their children should take the time to fill out the HMRC Form R85, which can be downloaded from the Inland Revenue’s website. Once the form has been given to the savings provider that the account is with, parents can rest assured that they will not be deducted tax from the savings, forcing them to go through the hassle of claiming the tax back.
Less paperwork with a Junior ISA
The difference with the Junior ISA, offered by providers like Family Investments, is that it is specifically a tax exempt account, and parents need not worry about filling out paperwork and jumping through hoops to get tax deductions paid back.
The Junior ISA offers parents the chance to save towards a child’s future. The child can only access the savings once they reach eighteen, guaranteeing that the savings are locked down for the long term, allowing a potentially significant nest egg to built up over the child’s life until they reach maturity. However when they reach 16, the child will have full management of the account.
Open a Junior ISA with just £10
Whilst the Junior ISA allows for substantial savings to be built up over time, parents can open an account with as little as £10 and some providers allow for very low monthly premiums of just £10.
As with the adult ISA, Junior ISAs are available in two versions; Cash and Stocks & Shares. Any child who does not already hold a Child Trust Fund can have a Junior ISA opened in their name, and they are allowed to hold one of each type.
If the money is left in the account after the child turns eighteen then the Junior ISA automatically changes into an adult ISA.
MyEggNest's Top Tip: Shepherds Young Saver Plan
Child Tax Exempt Savings Plans (TESPs) are currently the most tax efficient way to save for your child - and Shepherds Young Saver Plan gives you the chance to lock away more per month than any other TESP.
The plan allows parents to save from as little as £7.50 to £100 each month - 4 times more than any other provider - and offers sickness benefits, along with the ability to withdraw up to 25% of the fund after 10 years.
For more information and reviews, click here
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