Junior ISA allowance changes next month – but Inheritance Tax warning issued to families
A Junior ISA is a long-term tax-free savings account for children, of which there are two types: a cash Junior ISA and a stocks and shares Junior ISA. In the 2019 to 2020 tax year, the maximum that can be saved in a Junior ISA is £4,368.
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However, Chancellor of the Exchequer Rishi Sunak delivered the Budget 2020 last week, with this financial statement revealing changes to the Junior ISA.
In a big boost for those saving tax-free for children, the allowance is set to rise by £4,368 to £9,000 per tax year.
Following Mr Sunak’s speech, Money Saving Expert founder Martin Lewis read through the details of the 2020 Budget, and took to Twitter to comment.
Mr Lewis wrote: “Starting to look through the detail it seems they may well be increasing the Junior ISA allowance (for under 18s) from £4,368 to £9,000, a massive hike, though actually as there are far fewer taxes on people’s savings these days not such an impact.”
This means that the amount that can be saved in a Junior ISA in each tax year would increase from £4,368 to £9,000.
Kay Ingram, Director of Public Policy at LEBC Group and a Chartered Financial Planner, told Express.co.uk what the changes could mean for parents and grandparents saving, or looking to save, in a Junior ISA.
The chartered financial planner said: “Parents and grandparents wishing to give grandchildren a good start may pay into a JISA but only a parent or guardian can establish one.
“The new limit could enable wealthy families to pass on a considerable amount of wealth.”
However, Ms Ingram did point out that families may need to watch out when it came to rules abouts Inheritance Tax – of which the standard rate is 40 percent above a certain threshold.
“However care would need to be taken as the annual gift allowance on an Inheritance Tax free basis is £3,000 per donor (with one year’s allowance carried forward) or £250 per recipient,” she said.
“Anything over this limit would remain potentially chargeable to Inheritance Tax for seven years. Parents and grandparents wishing to make larger gifts would need to take this into account.
“If they have surplus income they could make regular payments over more than one tax year, which are exempt from Inheritance Tax immediately, with no upper monetary limit.
“Given current market volatility, making regular payments also offers the advantage of buying shares over a longer time frame and evening out the price paid and so smoothing out the peaks and troughs of the stock market and reducing the risk of a large loss compared to a one off lump sum investment.”
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Also commenting on the changes to the Junior ISA, Carol Knight, Chief Operating Officer at TISA, said: “It is a lot easier to build a substantial sum of money when investing over a long period of time.
“The Government sent a strong message about the importance of saving from a young age when the Chancellor announced a significant rise to the annual subscription limit of Junior ISAs and Child Trust Funds from £4,368 to £9,000 in the Spring Budget.
“While the increase in the annual subscription limit isn’t expected to cause waves in the market, as the full allowance cannot be taken advantage of by most – the average subscription into a JISA is currently just £994 – this rise may encourage more banks, building societies and other financial institutions to offer JISAs.
“This is because they could become more valuable, especially when the account holders turn 18 and consider transferring these savings into an ISA.
“We would also like to see the Government encourage and nudge families to take a closer look at the benefits of early savings, given the enourmous advantages a little early financial planning can deliver.”
James McManus, chief investment officer, Nutmeg, said: “The new Junior ISA limit means people can give the children in their life a truly meaningful financial head start – perfect to fund important financial milestones and costs such as university fees, gap years, and house deposits.
“It also means we can start to build a long-term saving culture, which is very much needed to tackle the UK’s savings gap, from an early age.
“While in the past people may have thought that savings accounts and cash savings could achieve a healthy nest egg for your child, in reality, given current savings and inflation rates and today’s cut to the base rate, investing in stocks and shares, can be a more effective way to invest for your child’s future.
“An investment that benefits from compound returns over a longer-timeframe could mean your child goes into adulthood with a significant sum of money.”
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