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Junior ISAs: One trick that lets parents save £36,000 tax free

Rebecca Goodman
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Rebecca Goodman

A quirk in the tax system means some parents could put away £36,000 in a year for a child, it has been revealed.

By taking advantage of certain tax breaks, parents could put away £36,000 in a single tax year and not pay any tax, if they have the cash available.

Here is how it works…

If a child has a Child Trust Fund (CTF) up to £9,000 a year can be paid into the account. The allowance for CTFs renews on the child’s birthday, not at the start of the tax year.

A parent could put away £18,000 into a CTF in one tax year, £9,000 before their birthday and £9,000 after their birthday.

The money can then be transferred into a Junior ISA, and a further £9,000 can also be deposited, which is the annual JISA allowance, resulting in £27,000 in the account.

It’s not possible to hold a CTF and a JISA at the same time, so the money will need to be transferred over into the JISA.

When the new tax year arrives, a further £9,000 can be put into the JISA, taking the total to £36,000.

‘Good move for wealthy families’

Laura Suter, head of personal finance at AJ Bell, who revealed the quirk, said: “The UK’s complicated tax system creates some great loopholes for savers, and this one means parents can save up to £36,000 into a tax-free savings account per child in as little as a few months.

“Clearly it depends when the child’s birthday is as to how quickly you can funnel that £36,000 into the accounts. And it’s sad times for those children who are born just before tax year end, as their parents may not have enough time to make the second Child Trust Fund contribution, transfer the account to a Junior ISA and make the first Junior ISA contribution before the tax year end.

“But for anyone not born at the start of April it makes a pretty attractive wheeze. The other big caveat is that parents need to have £36,000 that they want to save for their children. But for wealthy families looking to do some tax planning, it’s a good move.”