The annual junior Isa allowance will rise to £9,000
The annual Junior Isa allowance will increase to £9,000, Chancellor of the Exchequer Rishi Sunak revealed in today's Budget announcement.
Savers will be able to put away more than double the current Junior Isa allowance of £4,368 a year.
The new allowance will kick in from 6 April 2020.
A junior Isa is a tax-free savings account designed to encourage long-term saving for anyone under the age of 18.
Money placed in a Junior Isa can be accessed once the child turns 18.
After this point it will roll into a standard Isa subject to the adult threshold of £20,000.
The table below shows how Junior Isa rates have increased since 2016.
|Year||Junior Isa allowance|
Children can save almost £30,000 a year tax-free
From the age of 16 children can also open a standard adult Isa, which have a tax-free savings allowance of £20,000.
This in addition to the new Junior Isa savings allowance of £9,000 means that children can save up to £29,000 a year without incurring tax.
Despite the savings boost for young savers, experts warn that it will only benefit a privileged few.
Moira O’Neill, head of personal finance at Moneywise's parent company interactive investor says: “The more than doubling of the Junior Isa allowance will be a boost for parents looking to invest for their children and also a great way for grandparents to use up their annual gift allowances or making a potentially exempt transfer.
“In reality, being able to invest £9,000 a year per child is pie in the sky for most families, even when resources are combined across the generations.
"For the lucky few, the Junior Isa would be worth £265,851 if £9,000 was invested from birth every year with a 5% annual return – by no means guaranteed, but a staggering amount for the lucky few who have money like this to set aside.
"With a 3% annual return, the pot at 18 would be £217,051."
Michelle Pearce-Burke, CIO and co-founder of digital investment service Wealthify adds: “There’s a growing expectation on parents to help their kids financially when they reach adulthood.
"With the cost of higher education and property set to continue rising, parents who plan to help their children with these major life expenses will need to start thinking sooner rather than later about where the money will come from."
Neil Lovatt, commercial director at Scottish Friendly, comments: “More than doubling the JISA allowance is not what the country or this industry needs. It’s just another whopping middle class tax-break on top of a £2bn pension giveaway.
"This increase will only serve the rich, wealthy and well advised and not the millions of parents and grandparents who want to save and invest for their children.
“It would have been far better to use these resources to enact some of the reforms to JISAs that we have been calling for, such as enabling grandparents to set up JISA for their grandchildren rather than waiting on the parents to make the first move.
“This is far from a reform “for the people”, it’s just a wealthy giveaway disguised as progressive politics.”
For full coverage of the Chancellor's announcement read our round up - Budget 2020: What the Chancellor has announced and what it means for you.