Money hacks Using a junior Isa to build a nest egg for your child

A junior Isa is a long-term, tax-free way to save for children in the UK.

- Sarah Marsh

The accounts were introduced in 2011 to replace the child trust fund (CTF), which was discontinued as part of government spending cuts. Unlike CTFs, junior Isas are not started with a government voucher - all of the contributions are voluntary.

Parents or guardians open an account on a child's behalf, and anyone can contribute to it. The maximum that can be paid in each year is £9,000.

The money is locked away until the child turns 18, at which point they can do what they want with it.

There are two types of junior Isa: a cash version, which is like a traditional savings account; or an investment version, which can hold stocks and shares or funds. A child can have both at the same time, but only one of each type. The total annual contribution across both is capped at £9,000, meaning parents can split savings between cash and investments within that limit.

If parents gift money to their children and it's saved outside a junior Isa, any interest over £100 a year per parent is taxed as the parent's income, not the child's. This could create a tax bill if it pushes the parent over their allowances. In a junior Isa, all growth is tax-free, which is why many parents choose them.

To get started, parents will need their own national insurance number, their child's details, and information about any existing CTF or junior Isa they plan to transfer.

Laura Suter, the director of personal finance at the investment company AJ Bell, says: “Whichever parent opens the account will be the registered contact, who is then responsible for choosing investments and managing the account until they turn 18. If your child already has a CTF, you'll need to transfer it over when opening a junior Isa, as both accounts can't be held at the same time.”

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