A Junior ISA or Child Trust Fund (CTF) account offers tax free savings opportunities for children. The Junior ISA is available for UK resident children under the age of 18 who do not have a CTF. In 2018/19, both CTF and Junior ISAs allow parents, other family members or friends to invest up to £4,260 yearly in a tax free fund. There are no government contributions and no access to the funds until the child reaches 18.
High Income Child Benefit Charge
If you receive Child Benefit, it is important to remember that taxpayers with adjusted net income in excess of £50,000 during the tax year are liable to High Income Benefit Charge. If both partners have income above this level, the charge applies to the partner with the higher income.
The charge is 1% of the full Child Benefit award for every £100 of income between £50,000 and £60,000. Where income is more than £60,000, effectively all Child Benefit is lost. You can elect not to receive Child Benefit if you or your partner prefer not to pay the charge.
When someone becomes liable to the charge, they are required to notify HMRC: it is not something that HMRC will automatically set in progress. Since the partner liable to the charge is not necessarily the partner in receipt of the Child Benefit, potential problems can arise. It is not uncommon for example, for partners to be unaware of the exact level of the other’s income and so unaware of their duty to notify. There can also be problems in a marriage break up, with ex-partners needing to share financial details. Please contact us for further advice.
Appropriate strategies to keep each parent’s income below £50,000 can be considered here. If two parents have income of £50,000 for example, the household can receive full Child Benefit. But if one parent receives all the income, and the other none, all Child Benefit is lost.