Make your child a Junior ISA millionaire

Get your children started early with Junior ISAs, and they really could reach millionaire status faster in the decades ahead of them.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing for your children used to be a bit of a palaver, with parents typically having to use a thing called a bare trust to house their investments. Then 2005 saw the introduction of the Child Trust Fund, which gave a significant boost to the practice of saving for children.

It was all simplified further when the Child Trust Fund was replaced by the Junior ISA in 2011. The initial annual limit was set at £3,600, and that’s since risen to today’s £4,128 per year. Just about any UK resident aged under 18 can have one, providing they do not have a Child Trust Fund.

Those who do have a Child Trust Fund can continue to contribute to that if they wish, though since 2015 it has been possible to convert this into a Junior ISA, and I’d say that’s definitely the way to go.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Anything up to the maximum limit can be invested every year, but money cannot be withdrawn until the holder reaches the age of 18 — except in cases of death or terminal illness. Once the child reaches 18, their Junior ISA converts into an adult ISA with a much higher annual contribution limit — currently £20,000 per year.

Cash or shares?

Just like a regular adult one, Junior ISAs exist in both cash and stocks & shares versions. I’ve explained recently why I reckon a cash ISA is a bad idea, with many of them struggling to even match inflation. For children I think a cash option is even worse — because they potentially have far more time available for the likely superior returns from investing in shares to weave their magic.

Pior to the Junior ISA, parents were somewhat limited in the amount they could give to their children, with any returns generated on gifted money being limited to £100 per parent per year under the child’s tax allowance. Anything over the £100 was taxed at the parent’s tax rate, with the rule intended to prevent less scrupulous parents stashing away their own money in their kids’ names to try to benefit from the offspring’s tax allowances.

But why do you need to worry about keeping your children’s cash safe from tax, when they’re unlikely to be paying tax anyway? Children have their own tax allowances, and without any earnings they’d need to have some seriously impressive money stashed away to get enough interest to pay tax on.

No tax, ever

The big advantage is that all the money they accumulate in their formative 18 years, and any future returns on it, remains tax-free for the rest of their lives after it converts to an adult ISA. And it could be a substantial amount.

Suppose your child has the full £4,128 invested every year until age 18 — it should rise in line with inflation, but I’ll stick to 2018 money here. If their investment in shares achieves a 6% total return each year (which I certainly see as feasible) and all dividend cash is reinvested, they’ll reach adulthood with nearly £132,000.

It’s like adding £132,000 to their first adult ISA allowance of £20,000, and what a start to adult life that would be. I’ve previously shown how you could become an ISA millionaire in 20 years, and it would be a lot easier with an initial boost like that.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »