ISAs can usually have up to £20,000 saved within them in a tax year. This £20,000 can be put into a single account or split among different types. Currently, there are four types of ISA account.
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The most basic ISA available is a cash ISA but there are also stocks and shares, innovative finance and lifetime ISAs.
There are rules in place which affects who can open these accounts.
To open a cash ISA, a person must be 16 or over.
Stocks and shares or innovative ISAs can only be opened by people who are 18 or older
Lifetime ISAs can only be opened if the person is aged between 18 and 40.
On top of these age rules, the person must be a resident in the UK.
It is not possible to open an ISA for someone else but there is one unique option available.
Junior ISAs can be set up for children aged under 18 and who are living in the UK. Unlike other ISA accounts, the savings limits is £4,368
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Unlike other ISA accounts, the savings limits is £4,368
It is important to add as much money as possible to junior ISA accounts as any unused allowances will be lost.
This will likely be important for junior ISA holders as it is much more achievable to put in the maximum amount, when compared to regular ISA accounts.
The tax year in the UK runs from 6 April to the following 5 April.
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Usually ISA allowances reset once a new tax year starts but junior ISAs will see a drastic change for 2020/21.
Rishi Sunak revealed that junior ISA allowances will be increased to £9,000 in the coming days.
This is more than double the current rate.
While many parents in the UK may prioritise their own accounts when planning their finances, it is important not to forget their children’s financial future.
Rob Morgan, an Investment Analyst at Charles Stanley Direct explained how planning now could help with future costs.
As he detailed: “Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments for a child.
“The tax benefits are the same as an adult ISA – no capital gains tax, and no further tax to pay on income.
“Withdrawals are possible from the age of 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house.”
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