A stocks and shares ISA is an excellent way to start an investment portfolio and reap some fantastic returns. One way to take advantage of what this type of ISA has to offer is to invest for your kids. Why? Well, the sooner you start saving, the more the portfolio will grow. Therefore, opening a stocks and shares ISA on behalf of your children is a great way to set them up for the future.
Overpaying on broker fees? See if you could save by switching providers – with the help of our broker cost calculator. Start your calculation.
Is there a stocks and shares ISA for kids?
If you want to open a stocks and shares ISA on behalf of your kids, your best option is to open a junior stocks and shares ISA. These savings accounts allow parents and guardians to build an investment portfolio for their children.
Junior stocks and shares ISAs are offered by a range of platforms. If you have an existing stocks and shares ISA, it may be worth inquiring about opening a junior account with your current broker.
You can open up a junior stocks and shares ISA for any child under the age of 16. However, it is worth noting that children can only have one of this type of ISA at a time. You can start investing in a junior stocks and shares ISA for your child from the moment they are born.
How does a junior stocks and shares ISA work?
Just like a regular stocks and shares ISA, a junior stocks and shares ISA allows you to build a portfolio of investments. You can choose between funds, stocks, shares and ready-made portfolios. However, it’s important to note that the annual ISA allowance for a junior stocks and shares ISA is £9,000, rather than the £20,000 limit for adults.
A junior stocks and shares ISA can earn profit and dividends from the stocks that you buy. Any money that is made will be tax-free and can be reinvested into the ISA to continue saving for your child’s future.
When your child turns 16, they will be able to take control of the account. However, they will not be able to withdraw any funds until they are 18 years old.
Overpaying on broker fees? See if you could save by switching providers – with the help of our broker cost calculator. Start your calculation.
Are there other options to save for your kids’ future?
There are two types of junior ISA that you can invest in.
A junior Cash ISA works like a regular savings account. The money you put into the account grows through interest over time. However, you will not be charged tax on any interest that is earned.
With a junior stocks and shares ISA, you can build an investment portfolio for your child. As investment is involved, this type of ISA comes with a higher level of risk, but it can also give a better return on investment. Instead of earning money through interest, this type of ISA earns money through dividends and stock price increases.
It is possible to open both types of ISA for your child. However, the total annual ISA allowance of £9,000 will be split between them.
The best ISA for your family will depend on the level of risk that you are willing to take. A junior stocks and shares ISA is a great way to introduce your child into the world of investing and can produce excellent returns. In contrast, a junior cash ISA is a much safer option that offers a lower return.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
Was this article helpful?
YesNo
About the author
Ruby is a freelance writer who enjoys writing about all things personal finance. After embarking on her own side hustle journey three years ago, Ruby is passionate about helping others to learn about the ins and outs of persona… Read More
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
