Many advisers will have had questions on the junior Isa from clients.
The tax-effectiveness of the Jisa, like the Isa, is beyond question. Short of front-end relief, it is tax-free all the way, well, save for inheritance tax.
However, it is not as if there are no tax-effective alternatives to the Jisa and these have to be considered by anyone taking a children’s saving strategy seriously. Many retail strategies for saving for children are founded on insurance investments or collectives, with or without a trust. I will come to these later.
First, you need to understand the Jisa. To do that, I have referenced the Techlink Professional, Technical Connection’s knowledge management platform.
The original Jisa announcement was made more than a year ago on October 26, 2010, when the Government announced it would introduce a tax-advantaged account for saving for children to be known as a junior Isa.
Legislation to provide for the Jisa was introduced in the Finance Act 2011 and secondary legislation, in the shape of the Individual Savings Account (Amendment No 2) Regulations 2011 – SI 2011/1780, came into effect from November 1, 2011.
Jisas are available for any child under 18 who is UK-resident and who does not hold a child trust fund.
They have no tax relief on input but are tax-relieved and have many features in common with existing Isas. They are available as a cash or stocks and shares product.
The Jisa aims to provide families with a simple, transparent, accessible and competitive product to save for children who do not have a CTF account; and allow families to save more for their children than they otherwise would be able to.
In its Budget 2011 impact assessment, HM Revenue & Customs stated:
- Jisas will be a voluntary product, no individual will be required to open or manage an account. It is estimated about six million children will be eligible for an account from the date of introduction and a further 800,000 children will be newly eligible each year from their date of birth.
- Based on the proportion of CTF accounts that receive parental contributions, it is assumed that, over time, 20 per cent of children could have a Jisa.
- Jisas will give families more choice when deciding how to save for their children. Accountholders will benefit from tax relief on income and capital gains earned on their Jisa.
- A Jisa will be opened and managed by a person with parental responsibility for an eligible child. There may be minor one-off costs associated with applying for and opening an account, although this will depend on the processes operated by account providers.
Once opened, the person managing the account will be able to decide how actively they wish to do so. There may be provider charges associated with the management of some Jisas. However, these charges will reflect a voluntary agreement between the account provider and the person authorised to operate the Jisa on behalf of the child.
- Overall, any costs for individuals are likely to be negligible and incurred voluntarily. Furthermore, these costs will be broadly comparable with those for any other non-Isa children’s saving product.
- Eligibility for Jisas will be open equally to all UK-resident children who do not hold CTFs. Only people under 18 will be eligible for a Jisa. This limitation is integral to the policy aims of the accounts, which relate to saving for children.
- Some faith groups are prohibited from holding certain interest-bearing accounts and investments. Jisas will be designed so they can be offered as a Sharia-compliant product. However, the precise terms and conditions of each account will, in most respects, be matters for agreement with the account provider.
- Provision of Jisa accounts will be entirely voluntary and this will be a commercial matter for each institution. We anticipate that accounts will be provided by a range of banks, building societies, credit unions, friendly societies and stock brokers.
What do the details of the Jisa regulations look like? We will see next week.