There are quite a number of misconceptions and misunderstandings when it comes to opening and maintaining a Junior ISA or children's ISA for your child. In this article I'm going to take a quick look at some of the common misunderstandings or areas of confusion people have regarding their child's ISA.
One of the first misunderstandings which I have come across in talking with parents who are researching different ISAs for their child is about the number of accounts a child can have. The confusion arises out of the fact that there are two different types of Junior ISA. The first is a simple cash ISA, and the second type is a stocks and shares ISA.
A parent, or whoever has parental responsibility, can open either or both of these accounts for their child. It is not necessary to open both accounts, and it doesn't necessarily represent an advantage having two accounts rather than just one. The annual limit on the amount of money which can be credited to a Junior ISA is £3600. If your child has just one ISA account then this £3600 limit applies to just this account.
However, if you have opened both a cash and a stocks and shares ISA account for your child, then the £3600 limit applies to the combined sum of money credited to both accounts. In other words, if you deposit £1800 in the cash ISA, then within the same tax year the maximum you would be able to credit to the stocks and shares ISA would be £1800. The only real advantage in having two accounts rather than one is that it gives you slightly more flexibility in determining how much risk is undertaken.
Another misunderstanding is about the eligibility of a child. Between 1 September 2002 and 3 January 2011 the government ran a scheme called the Child Trust Fund. Any child born during this period received a £250 voucher, and parents were able to credit this sum to any CTF account of their choice. The vouchers though were valid for only 12 months, and many people assume that if they never credited those vouchers to a CTF then their child will now be eligible for a Junior ISA.
It is true that no child is eligible for a Junior ISA if they already have a Child Trust Fund account. However, even if parents did not credit the £250 voucher to a Child Trust Fund provider within 12 months, after this time the government should have automatically chosen a provider on behalf the child, and then credited the voucher to that account. Letters should then have been sent to the parents to advise them of the details of the Child Trust Fund provider.
This means that whether or not you credited the voucher to a provider of your choice, it is almost certain that if your child was born during this period they will not be eligible for a Junior ISA. However, if your child was born after 3 January 2011 then they will certainly be eligible for such an account.
Finally, there is some misunderstanding regarding what happens if you leave the UK. If you do leave the UK at any point during the time your child's junior ISA is running then you will not be able to credit the account at that time. However, whilst you are outside of the UK your child's ISA will continue to accrue interest, and will become available to your child once they reach the age of 18, regardless of where they live. If at any point you return to the UK then of course you are immediately able to continue making payments into the account for them.
One of the first misunderstandings which I have come across in talking with parents who are researching different ISAs for their child is about the number of accounts a child can have. The confusion arises out of the fact that there are two different types of Junior ISA. The first is a simple cash ISA, and the second type is a stocks and shares ISA.
A parent, or whoever has parental responsibility, can open either or both of these accounts for their child. It is not necessary to open both accounts, and it doesn't necessarily represent an advantage having two accounts rather than just one. The annual limit on the amount of money which can be credited to a Junior ISA is £3600. If your child has just one ISA account then this £3600 limit applies to just this account.
However, if you have opened both a cash and a stocks and shares ISA account for your child, then the £3600 limit applies to the combined sum of money credited to both accounts. In other words, if you deposit £1800 in the cash ISA, then within the same tax year the maximum you would be able to credit to the stocks and shares ISA would be £1800. The only real advantage in having two accounts rather than one is that it gives you slightly more flexibility in determining how much risk is undertaken.
Another misunderstanding is about the eligibility of a child. Between 1 September 2002 and 3 January 2011 the government ran a scheme called the Child Trust Fund. Any child born during this period received a £250 voucher, and parents were able to credit this sum to any CTF account of their choice. The vouchers though were valid for only 12 months, and many people assume that if they never credited those vouchers to a CTF then their child will now be eligible for a Junior ISA.
It is true that no child is eligible for a Junior ISA if they already have a Child Trust Fund account. However, even if parents did not credit the £250 voucher to a Child Trust Fund provider within 12 months, after this time the government should have automatically chosen a provider on behalf the child, and then credited the voucher to that account. Letters should then have been sent to the parents to advise them of the details of the Child Trust Fund provider.
This means that whether or not you credited the voucher to a provider of your choice, it is almost certain that if your child was born during this period they will not be eligible for a Junior ISA. However, if your child was born after 3 January 2011 then they will certainly be eligible for such an account.
Finally, there is some misunderstanding regarding what happens if you leave the UK. If you do leave the UK at any point during the time your child's junior ISA is running then you will not be able to credit the account at that time. However, whilst you are outside of the UK your child's ISA will continue to accrue interest, and will become available to your child once they reach the age of 18, regardless of where they live. If at any point you return to the UK then of course you are immediately able to continue making payments into the account for them.