What is a Junior ISA account and how does it work?
A junior ISA or JISA is a tax-free savings account for UK resident children under the age of 18.
A junior ISA can be opened on behalf of a child only by someone with parental responsibility for that child, i.e., parents or legal guardian. This is known as the registered contact.
The registered contact is responsible for making investment decisions on the Junior ISA, where a stocks and shares JISA is held and they can choose to transfer the account to another Junior ISA provider, if they so wish. At 16 years old, the child can take on this responsibility from the registered contact.
The current limit on subscriptions to a Junior ISA within any one tax year is £ 9,000. (as at tax year 21/22). Note, the tax year runs April 6th to April 5th of the following year. Hence tax year 21/22 ends on April 5th 2022.
It is important to understand that whilst only persons with parental responsibility can open a Junior ISA, anyone can make payment to a child’s Junior ISA account. But once payments are made to the account, they cannot be withdrawn. The child is now the beneficial owner of those funds.
When the child turns 18
A Junior ISA can be held as a Cash JISA or a Stocks and Shares JISA and it cannot be closed, until the child has turned 18. Though, the registered contact can transfer to another provider, including switching a Cash JISA to a Stocks and Shares JIA and vice vera.
On the day the child turns 18, the junior ISA, ceases to be a Junior ISA, but it does not lose the benefits of the tax wrapper. It effectively becomes an adult ISA. Of course, the now 18 year old child, will not be able to subscribe to their new ISA account until they have completed relevant onboarding documents with their provider, or another provider, in the event they wish to transfer their new ISA account to another ISA manager. They will also need to sign an ISA application form before they are allowed to make use of their adult ISA allowance (in tax year 21/22 this is £ 20,000.).
It should also be noted that in the year the child turns 18, they can, in theory, subscribe £9,000. to their Junior ISA and then make full use of their adult ISA allowance of £ 20,000., hence in that tax year subscribing a total of £ 29,000.
The other option available to the now 18 year old child is to withdraw all of the funds, and in the case of a stocks and shares Junior ISA, instruct their provider to sell all the investments and then withdraw all the funds and close the account.
Finally, they can make a partial withdrawal and keep the remaining funds/assets within an adult ISA.