Nearly 20 years after ISAs were introduced, they have become the bedrock of many people’s savings. In the years since, the government has built on that success by expanding the ISA family.
In 2011 Junior ISAs were launched to promote saving for children. The Lifetime ISA, designed to encourage under 40s to save for their first home or retirement, made its appearance in 2017.
You can put up to £4,260 this tax year into a Junior ISA (JISA). All under-18s who are resident in the UK can have a JISA - although if your child already has a Child Trust Fund (CTF) you would need to transfer its contents into a JISA and close the CTF account to be able to make JISA contributions.
Only parents or a guardian with parental responsibility can open JISAs on behalf of their child, but anyone can contribute, be they grandparents, godparents or friends. The annual allowance can be invested in cash, equities or split between the two.
With a JISA, the money is locked away until the child’s 18th birthday, at which point it converts to an adult ISA and they can do what they like with the funds. If you have saved diligently on their behalf a JISA pot could go towards university fees, a first car or first home. Involve the child in monitoring their JISA's performance, and it can also be a great way to help financially educate them.
While JISAs are aimed at children, Lifetime ISAs (LISAs) are specifically designed to help younger adults to build up funds towards the purchase of a first home or for retirement. Anyone aged between 18 and 40 can open an account and make contributions until their 50th birthday. Once again, there are cash as well as stocks and shares versions.
The maximum that can be invested in a LISA is £4,000 a year. The government then adds a 25% bonus to contributions. For every £4 saved the government adds £1, which means a maximum bonus of £1,000 on the annual £4,000 limit.
Although you can withdraw money from a LISA whenever you want, to keep the bonus you will need to put the cash towards buying a first home worth up to £450,000 - or have reached age 60.
LISAs could be useful for lots of young adults. However, people should get advice investing in a LISA because other types of investment wrappers may be more appropriate for their particular needs and objectives.
If you are unsure what to do next, an expert Brewin Dolphin financial planner can advise on the best ways for you to save to meet your financial goals.
The value of investments can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.