Opening up an individual savings account (ISA) can be pretty overwhelming with so many options currently available on the market. However, the two most common ISAs – depending on your age – are typically Junior ISAs and Lifetime ISAs (LISAs).

Our Financial Adviser, Thomas Pescott Frost, explains a bit more about both options and their differences, helping you to decide what’s right for you and your family.

Junior/Children’s ISAs

Junior ISAs (or JISAs) are long-term, tax-free savings accounts for children under the age of 18. Due to the age restrictions, these have to be set up by the legal guardian of the child. While the parent or guardian will manage the money, it will always belong to the child and be in their name.

There are two types of Junior ISA; a cash ISA, where you will not pay tax on any interest earned, and a stocks and shares ISA, where you will not pay tax on any gains from investments. A child can have one, or both types of ISA, as long as your yearly contributions do not exceed a £9k savings threshold. 

This is the  yearly savings limit for a JISA for the 2024/25 tax year, meaning that parents and guardians can pay up to this amount without receiving any tax-related penalties on gains. If this were to be exceeded, you’d then be subject to Capital Gains Tax (CGT) on interest gained from the additional savings.

Current legislation states that your child can take control of the account once they reach the age of 16, however they will be unable to withdraw any money until they’re an adult at 18 years old. Once a child turns 18, their Junior ISA will then automatically become a standard ISA – which allows contributions of up to £20,000 per year without any tax related penalties.

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Lifetime ISAs

Unlike a Junior ISA, you must be over the age of 18 (and up to the age of 40) in order to open up a Lifetime ISA (LISA). These are predominantly used to either save for your first home, or for later on in life such as for retirement.

You can deposit up to a maximum of £4,000 into your LISA per year until the age of 50, however you must make the first payment before the age of 40. The government will add a 25% uplift to your savings, up to a maximum of £1,000 per year. The government top up does not eat into your allowance, so this won’t affect your £4,000 per year contribution.

If you choose to use your LISA to buy your first home, the property must cost £450,000 or less, and you must buy the home at least 12 months after your first payment into the ISA. If you access the money for any other reason than for buying a house, or before the age of 60 if you’re saving for later in life, there will be a 25% penalty on all money taken.

If you choose to open up a LISA and input the maximum amount of £4,000, you can also open another ISA alongside this if required. This would provide you with an additional £16,000 tax-free allowance (totalling £20,000 per tax year). So, although you’re limited to £4k in your LISA, you can still take advantage of your full allowance through other means of saving.

Key differences between Junior ISAs and LISAs

  • Junior ISAs are offered by many different platform providers, whereas Lifetime ISAs are offered by considerably fewer
  • Charges on LISAs are often much cheaper, as there are rules around charging on these. At Matthew Douglas, we do not charge at all on LISAs, however the investments themselves will have charges applied
  • JISAs are set up by a parent or guardian, whereas LISAs are set up by the individual themselves (from the age of 18)
  • You can save up to £9,000 per year in a JISA, and £4,000 per year in a LISA
  • You have to be under 18 to open a JISA, and 18+ to open a LISA
  • A Junior ISA is specifically designed to be used for children
  • Children can have a maximum of £9,000 per year tax-free, whereas adults can have up to £20,000 (through additional ISAs)

Regardless of what age and stage of life you’re at, starting your savings early will provide you with the opportunity to maximise your potential growth. 

If you’d like advice on either Junior ISAs, Lifetime ISAs or have a general savings query, please feel free to get in touch with our team today for a free consultation.