This blog answers the question “Does A Junior Individual Savings Account Affect Benefits?”A Junior Individual Savings Account does not affect benefit claims as child savings accounts are exempt from being considered as income (under HMRC rules).

Does A Junior Individual Savings Account Affect Benefits?

A Junior Individual Savings Account does not affect benefit claims or count towards the savings level requirements for any benefits.Claims for benefits can only be affected by an increase in your income or by a high level of savings (benefits get affected from savings above £6000 a month)

You can have only £6000 of savings which don’t affect your claim for council tax benefits. With savings in excess of £6000 your benefits will be reduced by the value of your capital tariff income (an amount in proportion with your excess savings).

 Child savings are generally exempt from being taxed by HMRC.The current upper limit for savings to be stored in such an account for the year 2022-23 is £9000

Junior Individual Savings Accounts are long term child savings accounts. A Junior Individual Savings Account has 2 kinds:

  • a Junior ISA in cash, 
  • Junior ISA stocks and shares, 

Your child’s Junior ISA is in their name, but the parent who opens and deposits in it is responsible for managing the account and is known as the “registered contact”.

The registered contact is the only person who ( is authorized to) :

  • Can change the account type, 
  • Can change the account provider 
  • Report a change of changed circumstances to HMRC

What happens to a Junior ISA if a child is terminally ill or dies?

If your child is terminally ill, you can withdraw money from the Junior ISA Account. When they die, the money goes to whoever inherits their wealth (property and possessions).

“Terminally ill” means that they have a disease or illness that will get worse and will probably not live more than 6 months. Only the registered contact person can withdraw money from the account.

You need to complete the Early Access Form for your (terminally ill) child. This form will inform to let HM Revenue and Customs (HMRC) about these issues:

  • your child is terminally ill
  • you want to withdraw the money from the account

You have to prove that your child is terminally ill. This could be through the medical report of a certified general practitioner

If your child dies. You will need their death certificate to inform HMRC of this development. Money from the account is paid to the person who inherits the child’s estate. This is often one of the child’s parents, but if your child was married, it could be their husband or wife. If you receive Child Benefit for a deceased child, these may continue to be paid for a short period.

What items are counted as capital and savings that are not recorded until 6 months?

  • Any money you use to carry out repairs or improvements to your home or you plan to use for repairing or replacing damaged items. If you or your partner are pension age this amount will be ignored for one year from the date you receive it
  • Any property you have inherited and still plan to use as your home
  • Your previous home if you are separated from your partner (from the date it was left empty)
  • Any property which you are trying to sell , from the date you intend to put it up for sale is not counted as savings
  • Any property which needs to be repaired before you put it up for sale (from the date of start of repairs)
  • Any money you have received from selling your previous home, which you will use to purchase a new home. (if you or your partner are pension age)
  • Any property where you have started legal proceedings against the person who was living in it to get possession of it (not counted from the date you have started legal proceedings)

Which savings are not considered as income for benefits:

  • the value of any property occupied by someone who is a “close relative” of yours if they have reached retirement age of 65 years (66 years for women) or are “ineligible” to being counted as occupants.
  • the value of a property for up to 26 weeks if you bought it to live in, are trying to sell it, carry out repairs or renovations in it necessary for making it inhabitable or to seek legal advice to live in it
  • the value of an old home, for up to 26 weeks if it is vacant due to a relationship breakup or indefinitely if your ex-partner lives there and is also a single parent now
  • the proceeds from sales from your home (for up to six months) if you plan to buy another property
  • money from claims( for up to six months) used as replacement or repair for damages to property
  • money such as a loan or grant to pay for essential repairs or improvements to your property
  • capital derived from damages received in connection with an injury sustained under court supervision or within a Personal Injury Trust
  • your personal belongings (essential ones)
  • your assets
  • a life insurance policy that has not been claimed for some time
  • any currency conversion fees if your equity deposit is not held in sterling
  • Any National Insurance Contribution payments
  • arrears of state benefits, which would be positive arrears
  • certain fees
  • the value of a prepaid funeral plan for your funeral
  • the value of a pension fund to which you do not have access to but may have made deposits to in the past

What are the benefits of using notice savings accounts over a Junior ISA for child savings?

Notice savings accounts may be right for you if you want to take advantage of competitive variable interest rates and have the flexibility to withdraw your money after a certain period of notice(given to your bank for cash withdrawals) The interest rate offered on a notification account is higher than a Junior ISA.

A notification account might also be the best one for you for the following reasons:

  • Your savings are in a secure deposit with the bank instead of lying around with you.
  • You earn a competitive floating interest rate
  • In a notification account you can withdraw your money after a fixed cancellation period
  • They make it less likely for you to waste your hard earned savings over a short period of time or on a few basic child expenses (food or toys)
  • Notification accounts are free to open

What options do I have for my child’s savings accounts?

You can choose from a range of options for your child’s savings accounts The two main options are regular savings accounts and instant access savings accounts. You can open an account at a bank or building society for a child. They can start managing their own account at the age of seven. You can open an account for just £1 initial deposit for each of your children aged 18 and under.

These accounts are a great way to learn about money management and help kids get used to saving. And some providers include a gift with the account, like a piggy bank. In some cases, your child can withdraw their money whenever they want.

.With an instant access account, you or your child can withdraw or deposit money at any time. You will normally get a lower interest rate than other types of accounts.

Regular savings accounts are meant to encourage children to save an amount each month and often run for a certain period of time, for example 12 months. If you withdraw within this time, the account may reduce the interest you receive. These accounts therefore generally pay a higher interest rate than accounts with instant and easy access.

Conclusion

This blog post addressed the question “Does A Junior Individual Savings Account Affect Benefits?” A Junior Savings Account does not affect your claims for any benefits or add to your savings when calculating entitlement for allowances. The Junior Savings Account is preferable to relying on monthly Child Benefit payments for your children’s future. It is also a more reliable source of funds to care for their lifelong disability needs (for disabled children)

Please feel free to comment on the content or ask any questions in the comments section below :

Frequently Asked Questions (FAQs) : Does A Junior Individual Savings Account Affect Benefits?

I am under 18 years old, will any gifts from my parents be taxed?

If you are:

  • under the age of 18 and not married or in a PACS
  • and one of your parents (including parents-in-law) gives you funds (directly or indirectly) as a gift;
  • The aggregated funds made available to you by that parent will then produce over £100 of pre-tax income (e.g. interest on savings) each year.

If all of the above conditions apply then all of this income (not just the excess over £100) is treated as ‘parental allowance’, meaning it is taxed as your parents’ income, not yours.

If you are under 18 and your grandparents or other family members provide the funds instead, these rules do not apply and you can donate any amount, even if the resulting annual income is over £100.

If you are 16 or 17, the parenting rules also apply if your parents donate an ordinary (adult) Individual Savings Account (ISA) in your name and your annual income is over £100 before tax, although that ISA income is generally tax exempt. However, if the gift is intended for a Junior ISA, these gifts are not subject to the rules of parental regulation.

Also keep in mind that your income matters when looking at the student loan amount you can get, so any income from a parent gift can influence your application.

What is tax free childcare?

Tax free childcare consists of payments to help parents bear childcare costs for disabled children and for looking after normal children.

Parents can get up to £ 500 every 3 months (up to £ 2,000 per year) for each of your children to help with childcare costs. This rises to £ 1,000 every 3 months if a child is disabled (up to £ 4,000 per year).

If you are on the tax-free childcare service, you will create an online childcare account for your child. For every £ 8 you deposit into this account, the UK government pays £ 2 to pay your (service) provider.

You can get Tax Free Childcare Service along with 30 hours of Free Childcare if you are eligible for both. Tax free childcare can also help expenses relating to your children at approved childcare centres such as:

  • caregivers, nurseries and nannies
  • after-school club and hours

Your childcare provider must be enrolled in the program before you can pay for it and qualify for Tax-Free Childcare.

Your eligibility depends on the following factors:

  • if you are working or not
  • your income (and your partner’s income, if you have one)
  • your child’s age and circumstances. These include being disabled
  • your immigration status. This is usually the same for claiming most government benefits which is a settled or pre settled immigration status.

Your child must be 11 years of age or younger and will usually live with you. They end on September 1 after the child reaches the age of 11.

Adopted children are eligible, but foster children are not.

If your child is disabled, you can receive up to £4,000 a year until they turn 17. You are entitled to it if you:

  • Are claiming Disability Housing Benefit, Personal Independence Payment, Armed Forces Independence Payment, 
  • are certified blind or severely visually impaired by a Certificate of Vision Impairment

There are also certain income level requirements for the childcare benefit. You should expect to earn a certain amount of money over the next 3 months. This is at least the national minimum wage. It can also be taken as the minimum wage for an average of 16 hours per week.

In case you are self-employed and do not expect to make a sufficient profit in the upcoming 3 months, you can use an average of what you expect to earn in the current fiscal year. This income ceiling does not apply if you are self-employed and you created your business less than 12 months ago.

If you or your partner have an expected ‘adjusted net income’ of more than £100,000 in the current tax year, you are not eligible. This includes all the bonuses which you have not already claimed.

Citations

Office of Tax Simplification : Savings Income 2018

Savings (Government Contributions) Act 2017

Notice Savings Accounts

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