Is an Adult or Junior ISA best for your teenager

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Most parents are not aware that 16 and 17-year-olds are eligible for an Adult cash ISA (Individual Savings Account). This means they could potentially hold both a Junior ISA and Adult ISA at the same time. But is it worth it? 

This only applies to an Adult cash ISA – your 16 or 17-year-old will not be eligible for an Adult Stocks and Shares ISA. Below we’ll look at the main differences between the Adult and Junior ISA’s, and why you might want to consider opening an Adult cash ISA for your 16 and 17-year-old.

What is a Junior ISA?
A Junior ISA is a tax-free savings option for children under the age of 18. It can be either a cash Junior ISA, where interest earned is tax-free, or a stocks and shares Junior ISA, where investment gains are tax-free.

Although your child will be able to take control of the ISA at age 16, they won’t be able to withdraw any money from it until they turn 18. Once they turn 18, the Junior ISA will automatically roll over into an adult ISA.

Children that were enrolled under the Government’s Child Trust Funds (CTF) initiative, are not eligible for a Junior ISA, however, CTF’s can be converted to a Junior ISA.

How is it different from a normal Adult ISA?
For Adult ISA’s, you can save up to a maximum of £20,000 every year (i.e. you can transfer £20K every year into the ISA). It is possible to have more than one ISA but your total investment across all the accounts still should not exceed the £20,000 limit. You are also allowed to make withdrawals from the account, as long as it’s not a Fixed Rate ISA.

With Junior ISA’s, the savings allowance is much lower, at £4,368 for the 2019/2020 tax year, and your child can only have one Junior ISA open at a time. Although they will have legal ownership of the money in the account, they cannot make any withdrawals until they are 18.

Another aspect parents should take note of is that, if money given to a child earns interest of £100 or more, it is tax exempt in a Junior ISA. However, in an Adult ISA, it is not exempt and the amount above £100 will be taxed at the gifting parent’s marginal tax rate.

Why you might want to consider opening an Adult cash ISA for your 16 or 17-year-old.
This two year period provides a unique opportunity in the ISA world for teenagers of this age group and their parents. The teenagers benefit from an increased savings allowance, meaning they can invest up to £48,736 tax-free over the two years (£20,000 Adult ISA allowance X2, plus £4,368 Junior ISA allowance X2). 

Parents, on the other hand, can continue to contribute to their teenager’s savings in the Junior ISA without having to worry about the tax implications, while the child now has the additional option of saving from other sources with the full £20,000 yearly allowance that comes with an Adult ISA. And when they turn 18, the Junior ISA is automatically merged with their Adult ISA, allowing them to continue to enjoy the tax-free savings without having to change accounts.

If you have any questions regarding this subject please contact us and we’ll be happy to help. 
Do you need extra information?
Debbie Wilson

If you are thinking of selling an asset (personal company shares, holiday home, land etc), Debbie can help you to achieve your aims in the most tax efficient way.

Contact Debbie at debbie.wilson@hhllp.co.uk or on 020 7004 7139