The Junior ISA at a Glance

The Junior ISA (JISA) has rarely been out of the news since its launch at the tail end of last Autumn, with many debating its merit as a vehicle for saving for our chidren’s futures and whether it adequately fills the gap left by the late Child Trust Fund. However, for any parent who’s considering opening one for their child it is worth getting to grips with the basic facts before weighing up their options and, to that end, the following provides an at-a-glance view of all the most pertinent information about JISAs.

Who is Eligible for a JISA?

• UK resident children (i.e., younger than 18) born...
• since 1 January 2011
• before 1 September 2002

Children born in the period between the dates above are instead eligible for a Child Trust Fund (CTF), the relatively short-lived precursor to the current Junior ISA, into which the government would contribute a starter fund, typically £250. Unfortunately those who are eligible for CTF cannot have their CTF switched into a Junior ISA.

Who Can Open a JISA?

• Parent/Guardian
• in the name of their child

The parent or guardian who opens the account becomes the registered contact for that account however any monies put into the ISA will always be owned by the child as soon as they are credited to the account, and not the registered contact. The registered contact cannot easily be changed once they have opened the account unless there is a suitable reason, such as the guardianship of the child changing (new foster or adoption parents for example), although the child can become the registered contact themselves when they turn 16.

What Accounts Can Be Opened?

• One Cash ISA
• One Stocks & Shares ISA

A child can hold both elements at the same time (as is the case with an adult ISA) and these can be held with different providers, but they are only entitled to have one of each account type open at any given time. At 16, the ‘child’ can also open an adult ISA themselves which will be completely ring-fenced from the Junior ISA.

How Much Can Be Put In?

• £3,600 per tax year

This is the limit for the 2012/13 tax year and is likely to rise in future tax years as the subscription limit for adult ISAs does. The entire sum can be put into either the Cash or Stocks and Shares elements, or split in any proportions between them.

What are the Investment Options?

• Cash
• Shares
• Collective Investments (Investment Trust, Unit Trusts, OIECs etc)
• Debt Securities (Bonds etc)

The monies within a Junior ISA can be apportioned however you wish amongst these options but, as with an adult ISA, the cash elements must be held within a Cash ISA (unless the cash is awaiting investment within the Stocks & Shares ISA) and the other investments, including Shares and Collectives, must be held within a Stocks and Shares ISA. For a full breakdown of all the investment options you should refer to a financial adviser and/or check the various providers on the market, however the investment opportunities will vary from one provider to another.

What Tax Breaks are Available?

• Income Tax
• including Dividend Tax
• Capital Gains Tax (CGT)

The Junior ISA protects any income on cash savings and investments, including interest and dividends, that would usually be susceptible to tax where the child’s overall income exceeds the standard annual tax free allowance that all individuals benefit from (£8,105 for 2012/13). In addition any gains the ISA makes will not be affected by CGT.

When Can the Monies be Accessed?

• When the child turns 18
• If the child is terminally ill
• If the child has died

Although the child can take over control of the Junior ISA as the registered contact when they turn 16, they will still not be able to withdraw the money until their 18th birthday. If the child is terminally ill the registered contact may apply to the HMRC to withdraw the monies and if the child has died the monies will pass within their estate to the relevant beneficiaries.
© Stuart Mitchell 2012

The Indian Economy - A Quick Profile

GDP (Gross Domestic Product) PPP (Purchasing Power Parity) per capita in the world. (Photo credit: Wikipedia)

Alongside those of Brazil, Russia, China and South Africa, the Indian economy forms BRICS, the group of nations with the fastest growing economies in the world. These nations represent the next generation of economic superpowers, however, India and China in particular are already establishing themselves amongst the largest and most potent industrial powers on the planet.

The Statistics
The considered size of the Indian economy varies depending on which metric is used to gauge it. According to the latest measurements of Gross Domestic Product - a reading of the output of a nation’s workforce - it is currently the ninth largest economy in the world. Moreover, when the figures are adjusted to take into account the true value of wealth in each country and the Purchasing Power Parity variant of GDP (GDP PPP) is used, India’s economy can already be considered as the third largest on the world stage. There is a real disparity however between this collective strength and the prosperity of individuals within the country. When these measurements are looked at per capita, they show that India’s population sit (on average) outside of the top one hundred wealthiest and so, in fact, can be considered one of the poorest populations despite the fact that recent economic success has doubled the hourly wage in last decade.

Growth in the Indian economy has really surged following the liberalisation of trade and employment rules in the early 1990s and a subsequent shift towards more capitalist sensibilities. These policies have essentially unlocked the country’s extensive natural resources, space and land as well as a relatively inexpensive labour force (the second largest work force in the world) who are consequently becoming better educated and more affluent. What’s more this affluent population are, in turn, increasing the size of the internal consumer market and the resultant growth in the Indian economy from all of these factors is now averaging around 7.5% a year.

Economic Sectors
Many in the West may envisage that India’s economy is mostly made up of large manufacturing industries or large scale agriculture. These sectors do play an important role in India’s prosperity, particularly agriculture which accounts for 28% of the nation’s output; making use of the vast tracts of land to produce arable crops. Manufacturing and industry however, perhaps surprisingly, only accounts for 18% of the country’s output despite the fact that some of India’s most prominent businesses and global names operate in these markets as, for example, steel suppliers or car manufacturers. India is indeed the second largest growing car producer in the world and still acts as a major (and growing) force in manufacturing and industry on the world stage.

The dominant sector in the Indian economy, as it tends to be in western economies, is the service sector, accounting for 54% of GDP. The most familiar element of that sector to us in the UK may well be the Indian call centre. Over the last few years, countless European and American businesses have spotted the opportunities to move their support services across to India to take advantage of the lower labour costs, good communications infrastructure and educated talent pool for whom English is a prevalent language. However, India is also a leading light in the information technology industries, proving a real challenger to the US as the global player for third party IT services; not to mention possessing established and well developed financial services and banking industries.

For some, the growth in economies across Asia, particularly those of China and India mean that can be considered the right time to investigate investment opportunities, such as Asian Investment Funds, whilst the European investment markets continue to suffer the effects of the recent economic troubles. The Indian economy is certainly on course to become, if it isn't already, one of the most prominent in world trade.

© Stuart Mitchell 2012

Encouraging Your Children To Save

Parents receive plenty of advice recommending that they consider saving money on behalf of their children, with successive governments also offering incentives in the form of the old tax efficient Child Trust Funds (CTFs) and the new Junior ISAs. The launch of the latter at the start of November has brought the subject back to forefront of many parents’ minds and it is therefore an opportune time to look at the reasons why it is not only a good idea to save on behalf of your children but to get them involved in the process as well.

Creating a Nest Egg
The primary reason for opening a savings vehicle for your child is usually to create a nest egg for their future; to put money aside which will help them on their way as they embark on adult life. The general economic troubles of the last few years together with the more acute issues, such as the raising of the tuition fee limit and the recent publication of youth unemployment figures topping 1 million, serve as timely reminders that you never quite know what the future may hold for you children when they reach adulthood. Therefore, any nest egg a child can access when they turn 18 may prove invaluable whether it helps cover their cost of living at university, their self sufficiency when employment is hard to come by or even if it helps them to get onto the property ladder.

To that end, savings vehicles such as the CTF or the Junior ISA are designed so that any money put into them will be protected until the child turns 18 in order for the funds to be available when they are most needed.

Educational Benefits
Beyond the more obvious financial benefits of opening a savings vehicles for you child it can also provide an excellent opportunity to introduce your offspring to the world of money so that they can be well prepared when the day comes for them to first take control of their own finances.

By getting children involved in the management and monitoring of their own savings you can increase their familiarity with concepts such as banks and interest and introduce them to the ideas that money you/we put into banks will grow and is (for the most part) secure. You can encourage them to understand that, for savings at least, the mechanics can boil down to the idea that we lend our money to the banks who will then pay us in return and that the amount they pay us is described in the interest rate. Once they are familiar with the more basic concepts they can be encouraged to take part in choosing their own accounts based upon criteria such as interest rates, and then monitoring their progress as they go.

Tax Benefits
Savings accounts for children are often referred to as being tax free which creates the false impression that children do not need to pay any tax at all on their money. In truth there are no differences between the tax children should pay on any money they put aside in savings accounts in comparison to their adult counterparts. In terms of interest, they are subject to the same income tax bands as adults, under which they are not required to pay tax on any income up to £7,475. For most (unemployed!) children this threshold is not likely to come into play but for children who may have extra earnings, parents should be aware.

There are further tax breaks though when adults wish to donate to a child’s savings plan. For any sum put aside by a parent or step parent the interest accrued will be tax free up to the limit of £100 per year, so where a child may have two parents and two step parents for example, this limit could even reach £400. What’s more, the limits do not apply to grandparents or any other generous adults so they can donate any amount of money to your child which would then benefit form tax free interest.

Through vehicles such as the Junior ISA (for children born after 3 January 2011 or before 1 September 2002) and the CTF (for children born between those dates) there are additional tax breaks on offer which mirror those of adult ISAs, such as an exemption from income, dividend and capital gains tax, but in turn the funds are locked up until the child reaches 18 as mentioned above.

Savings for Parents
It may seem slightly cheeky but, within limits child savings can be used as a means of saving a little bit more for the parents whilst taking advantage of the tax breaks. Obviously the above restrictions are designed to partly negate this and stop parents abusing their child’s savings options to circumnavigate tax but there is scope for benefiting up to the aforementioned £100 interest limits per parent. It is always worth remembering though that the money you put into a child savings vehicle does legally belong to the child not the parent (even though the child may not be able to do anything with it without your parental authority).

There are plenty of reasons why saving for children is a beneficial exercise and maybe the hardest decision you’ll have is working out which child savings vehicle is most appropriate for you situation, so it is always a good idea to seek out independent financial advice before committing to anything.