Annual limit uprated on junior ISAs, but not adult ISAs.
The Individual Savings Account (ISA) annual subscription limit for 2018/19 will remain unchanged at £20,000. The annual subscription limit for junior ISAs and child trust funds for 2018/19 will be uprated in line with CPI to £4,260.
Individual Savings Accounts (ISAs) are tax-free funds in which UK residents can hold a range of different investments. Originally, these were cash or stocks and shares products held by those over 16 years of age. However, in November 2011 the junior ISA was launched, which allows tax-free cash accounts to be set up for the benefit of those under 16.
The main benefits of ISAs are:
- no tax on income or gains within the ISA
- no tax on capital gains arising on the encashment of an ISA
- no minimum holding period: withdrawals can be made at any time.
There are three types of ISA:
- stocks and shares ISA (previously known as a maxi ISA)
- cash ISA (previously known as a mini ISA)
- innovative ISA.
Who can invest in an ISA?
To make an investment in an ISA, the qualifying individual must be:
- resident in the UK
- 16 or over for a cash ISA
- 18 or over for a stocks and shares ISA
- a Crown servant (eg diplomatic or overseas civil service) or their spouse or civil partner.
An individual who moves abroad and becomes non-resident can keep their ISA(s) and retain the tax benefits, but no contributions can be made during the period of non-residence.
These can include:
- savings in bank and building society accounts
- some National Savings and Investments products.
Stocks and shares ISAs
These can include:
- shares in companies
- unit trusts and investment funds
- corporate bonds
- government bonds
Innovative finance ISAs
These can include peer-to-peer loans, which are loans given to other people or businesses without using a bank.
You may not transfer any peer-to-peer loans already made into an innovative finance ISA.
Introduced in November 2011, junior ISAs were designed to be an alternative to the child trust fund but without the government contribution to the fund. Junior ISAs are available to a child living in the UK, who is under 18 years of age and does not have a child trust fund account.
As with adult ISAs, there are two types of junior ISA accounts: cash ISAs and stocks and shares ISAs. Junior ISAs funds are owned by the child and are locked in until the child reaches 18 years of age. The child is able to hold only one junior cash ISA account and one junior stocks and shares ISA account at any one time (although transfers between accounts are possible).
All income and gains within the accounts are tax-free, and losses will not be allowable for tax purposes. Annual contributions are capped, with the 2017/18 junior ISA allowance set at £4,128; for 2018/19 will be uprated in line with CPI to £4,260.
As the income from the junior ISA account is not taxable, the current anti-avoidance mechanism of assessing the income (once it exceeds £100) on the parent would not produce a tax liability. This means that a parent can fund their child’s junior ISA as well as their own ISA without attracting a tax liability on the interest or gains. This makes the junior ISA an excellent way of providing for the child’s future in a tax-efficient way.
There are two instances where withdrawals are possible before the child reaches 18 years old: where the child is terminally ill, or dies.
Legal title to all the investments passes to the child on their 18th birthday and the account ceases to be a junior ISA. The most likely outcome is that the investments will be rolled into an adult ISA. This may require the 18-year-old to complete an application to open an adult ISA.
Article from ACCA In Practice