Q: I heard you on the Kat Orman show on BBC Radio Oxford talking about savings for children and wondered if a Junior ISA was a good idea for my two?

Glad to hear that you were listening to Kat on BBC Radio Oxford and, although we touched on issues of interest and tax, we didn’t deal specifically with the Junior ISA option.

 Whether a Junior ISA is a good idea or not, is a product of those two elements, interest rates and tax. The tax position of interest for a child is generally the same as anyone else; interest is taxable but whether tax is payable depends on total income and the usual Personal and Personal Savings Allowances are available.

However, where the money in an account has come from a child’s parent, if the interest in a year exceeds £100 per parent, the parent will be taxed on the interest and not the child. If you are not currently using all your own Personal Allowance or Personal Savings Allowance then there would still be no tax to pay. 

The same does not apply to money gifted by grandparents, other relatives or in fact anybody other than you, their parent, and any interest on that money will always be taxable on your child. If your children are getting money to save from a number of people and the interest might get close to the £100 mark, it may make sense to hold anything that you have given them in a separate account from what they have had from others, to avoid muddying the waters. 

So if there is no issue with taxation of the interest, a Junior ISA has no particular benefit unless the interest rate is higher than you could get in a normal children’s account. Given that there are accounts available paying up to 4.5% per annum, this is unlikely. If there is a danger that interest on money which you have given your children might exceed the £100 per parent threshold, then a Junior ISA for up to £4,368 investment each year could be worthwhile if the interest rate you can get is more than the post-tax income would be from a normal account. 

Remember though that a Junior Isa will lock the money up until your child reaches 18 other than in exceptional circumstances so you need to be sure that this is longer term money that you wouldn’t want to use for your child before then.