16-year-olds can open two ISAs in the same tax year
16 to 18-year-olds can open two cash ISAs in the same tax year - something that is not allowed for anyone else.
This means they can save almost £10,000 each tax year in cash ISAs.
"The ability for children aged 16 and 17 to have both a JISA and an adult cash ISA is something that has not been widely publicised but is something that, if possible, families should make the most of," says Paul Kennedy, head of tax planning at Fidelity FundsNetwork.
While it almost sounds too good to be true, Kennedy reassures parents that it is perfectly legal to hold both types of ISA.
The full £3,600 JISA amount can be saved in cash or divided between cash and stocks and shares.
However, while children can open an adult cash ISA at the age of 16, they won't be able to open a stocks and shares adult ISA until they turn 18.
The cost of bringing up a child to age 21 is now £210,000, according to insurer LV=, so the chance to increase a child's savings will therefore be welcomed by parents, says Kennedy.
"Assuming a young adult takes advantage of both this and next year's full cash ISA allowance, they would have saved an extra £10,980. If that £10,980 were to grow at an average tax-free interest rate of 4%, it would add about a further £18,000 to the overall ISA pot around the age of 30 – and that's not even including any JISA savings."
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.