Are Junior Isas the best savings option for children?

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As a new parent, I’m eager to start saving for my child’s future. Are Junior Individual Savings Accounts still the most tax-efficient way to save, or should I consider alternative investment vehicles?

Laura Ripley, chartered financial planner at BRI Wealth Management, says saving for your child from their birth or early age is a great idea; the power of compounding means the earlier you start, the bigger the savings will be and even a small amount saved each month could save a good-sized sum towards future costs such as further education.

The most popular option is Junior Individual Savings Account (Jisas), these offer tax-efficient savings for children. These can be left in cash or invested for the opportunity of capital growth over the longer term. The annual contribution limit for Junior Isas is £9,000, and anyone can contribute to the account, including parents, grandparents, and friends. There are no tax implications within the Isa; no income tax on savings interest and no capital gains tax on profits made. The funds are not accessible until the child turns 18, so this ensures they are preserved and can at this point be withdrawn by the child to fund further education costs.

It is worth noting that from age 16, the child can gain control of the account although no withdrawals can be made until age 18. The savings are available to the child tax free and can be withdrawn periodically to fund ongoing education costs from age 18. Importantly, the parent has no control over how much is drawn, when and how the money is spent. This could mean that your child chooses to spend the money on what you want them to.

An alternative savings vehicle that is often missed is Children’s Savings Accounts, these are normal savings accounts but for children. They are more suitable for education costs as the money is available at any time (subject to account specific withdrawal limits) and so can be used for school fees prior to age 18. Many offer very attractive interest rates, but care is needed as they can have tax implications for you, as the parent.

If the funds are saved by the parent (or step-parent) and the interest earned is more than £100 in one year, this is taxed on the parent; they of course can offset this against any available personal savings allowance they may have but if they have cash saving themselves this may result in a tax liability. However, if the funds are gifted from a grandparent or other family or friends, this £100 limit does not apply, and the money is classed as being the child’s. Children can earn the same £18,570 a year in interest before it gets taxed so there is normally significant headroom for them to build cash savings. 

If control is important to you as a parent, then a trust could be used to park savings for school fees or to cover university costs. Depending on the specific needs, a bare trust or discretionary trust could be used but it is important to seek advice about the tax implications of the option used.

The timescales for when funding will be needed, the level of control you need and the tax implications will all be important factors in the decision.  

What happens if our marriage breaks down while living abroad?

My husband has been offered a fantastic work opportunity in Dubai. Our marriage has been under some strain with the pressure of us both working, raising young children, and dealing with rising mortgage and living costs, so a few years in the sun on an expat package where I wouldn’t have to work sounds extremely tempting. I can’t see what we have to lose, but are there things I need to worry about in case our marriage breaks down while we’re living abroad? What if I want to move back to England?

Rachel Freeman, partner at Burgess Mee, a law firm, says life with the pressures of work and young children can be stressful. You rightly identify that this move could be good for you and your family, but you are wise to think about the “what-ifs” in case it doesn’t work out.

If your marriage breaks down while you are in Dubai it is possible the United Arab Emirates court will have the power to deal with the divorce and related proceedings, including dividing your family finances and making decisions about the children. Accordingly, it is prudent to take advice before you move, so you know what would happen. 

In certain circumstances, you might still be able to get divorced in England even if you are living in Dubai. You should therefore seek advice about the differences in the two legal systems and how you might secure your preferred jurisdiction if you were to divorce.

The jurisdiction in which the divorce takes place is likely to have a major impact on the outcome. English courts, especially in London, are often considered more generous to the financially weaker spouse. It may also feel less daunting to deal with the situation in your home country. Finding a lawyer well-versed in international disputes is vital.

One option to consider is entering into a postnuptial agreement. This is like the better-known prenuptial agreement, but is entered into by couples who are already married. It could record which court you and your husband agree should deal with any future disputes and set out how you propose to divide the finances if the marriage does break down. Some couples feel that by agreeing these issues in advance they can then concentrate on their relationship. You should obtain advice from Dubai as well as England so the postnuptial agreement is effective in both countries.

You should also seek advice to confirm whether you will need your husband’s agreement, or permission from the court in Dubai, to take the children back to England, if you decided that you wanted to return. In many countries, including England, removing children from a country without the other parent’s permission can be considered a criminal offence. One parent wanting to return home with the children can be a legally complex and emotionally challenging issue, so it is essential to be aware of your rights and obligations before moving.  

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to [email protected].