Parents are using an ISA hack to add an extra £9,000 onto the £20,000 yearly limit. Antonia Medlicott, the founder of the personal finance site Investing Insiders, writing in the Times, explained how it works.
ISA limits for people over age 18 are £20,000 per tax year. She said: “I came across something that stopped me in my tracks. In the tax year a child turns 18, their family can pile up to £29,000 into ISAs, more than in any other year of their life.”
She said that the Junior ISA has an annual allowance of £9,000. By comparison the adult ISA has an annual allowance of £20,000. She added: “Most of the time these are completely separate, but in the tax year that a child turns 18 both allowances apply and they don’t cancel each other out.
“That means up to £9,000 can go into the Junior ISA before the child’s 18th birthday, and then up to £20,000 can go into an adult ISA on or after that birthday.
“In one tax year £29,000 can be sheltered from capital gains tax and income tax, legally, within the ISA wrapper.
“Many parents saving into a Junior ISA assume the allowance simply converts to the standard £20,000 adult limit when their child turns 18. The allowances actually stack, and this is an important factor for parents to consider.
“The year a child turns 18 is when grandparents often want to make a significant financial gesture — for university, for a flat deposit, or for a head start in adult life. This is the year to do it most tax efficiently.”
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “Junior ISAs are meant to help families build a financial head start for their children, but these figures suggest a growing number of accounts are effectively sitting empty – and that’s a warning light.
“When around two in five ISAs receive no contributions in a year, it points to the real pressure families are under. The data suggests that many parents are opening accounts for their children with all the right intentions, but that day-to-day costs are crowding out long-term saving.
“Child savings should not be something only a small minority of people can fully use. The priority should be making it easier for families to contribute what they can – little and often – and ensuring the system supports genuine financial resilience, not just high contributions.”
