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The easy way to save a tax-free nest-egg for a child

You can stash up to £4,000 a year into a Junior Isa and it could grow to be worth £100,000 or more by the time a child reaches 18

Simon Read
Thursday 19 March 2015 17:01 GMT
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Junior Isas offer a great way to save a nest-egg for a child but can also be helpful in starting a conversation about money and educating young people about savings, says Darius McDermott of Chelsea Financial Services.

“Junior Isas are fantastically simple flexible product with a £4,000 limit this tax year,” he points out.

“It’s a smaller allowance than the adult Isa but if you maximise your contributions every year and get moderate growth of between 5-7 per cent, a child would actually come away with a pot of between £120,000-£150,000 by the time they’re 18, assuming the Junior Isa was started when they were born.”

There are two types of Junior Isas: cash and a stocks and shares one. A child can have one or both types of Junior Isa but can’t take any money out of it until they reach 18, although they take control of the account when they’re 16.

It means they can, effectively do what they like with the cash when they’re 18. “That is an issue, but we find that most parents and grandparents want to use that point to discuss the savings with children and probably highlight that the cash has been built up to pay for university or a lump sum to put down as a deposit on a house.”

He points out that there’s no capital gains tax to pay on the growth in a Junior Isa, and a child could even eventually take a tax-free income from it when they’re older than 18.

What sort of investments should you consider for a Junior Isa? In the video Darius why he thinks you should you look at higher-risk options to begin with but consider lower risk opportunities as the child gets closer to 18.

Also in the video, important and good news for anyone with a poorly performing child trust fund.

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