Replacing Child Trust Funds, Junior ISAs act as a tax efficient savings account designed for adults to save and invest on behalf of their children. It is also possible for friends and family to contribute to a Junior ISA. The money invested into a Junior ISA is ‘locked away’ until the children reaches 18 years old. Up to £3,600 per tax year can be contributed as part of a junior ISA. Like ‘adult’ ISAs, the maximum yearly contribution will rise in line with inflation. The launch date for the Junior ISA has been set at November 1st 2011.
When Junior ISAs become available, they will present two different formats. The first is a cash junior ISA and the second is an investment Junior ISA. This is very similar to the options available for ‘adult’ ISAs. A Cash ISA will simply earn tax free interest on savings, while a investment Junior ISA can be subject to more risky investment opportunities through vehicles such as funds. In comparison to Child Trust Funds, the main difference with a Junior ISA is that there will be absolutely no Government contributions.