When investments can be withdrawn and how to close or void a Junior ISA.
When investments can be withdrawn from a JISA
Investments (including cash and the income earned by Junior ISA (JISA) investments) may only be withdrawn in the following circumstances:
- where a terminal illness claim made on behalf of the child has been agreed
- on closure of the JISA
- to meet certain provider management charges and other specific expenses - allowable charges and deductions under the management agreement include redemption of units at the investor’s request to pay charges due to their adviser
A JISA cannot be operated as a flexible account (see Flexible ISAs).
Request to reverse JISA subscription
When a JISA provider receives a request to reverse a JISA subscription, that was paid into a JISA in error by a parent of a child or any other person, they should inform the person making the request that their subscription is a gift to a child and it cannot be repaid.
The lock-in nature of the JISA means that subscriptions made by parents or any other person into a JISA cannot be repaid or reversed under any circumstances (except those detailed at when can investments be withdrawn from a JISA) because the subscription is a gift to the child.
Cash may be deposited into the JISA of an unconnected child in error. This could be the result of an error made by the bank or by the customer moving the money.
HMRC understand that if the error is spotted immediately - for example a bank keying error - the bank may be able to reverse the transaction and correct both accounts. And HMRC understand it is standard practice to notify both accounts holders to explain what has happened.
Where the error does not come to light immediately - for example where the customer misquoted an account number - HMRC understand the bank is obliged to contact the account holder of the recipient account and ask for their permission to redirect the monies elsewhere.
The lock-in nature of the JISA will not affect these sorts of rectifications. Banks should follow their normal (non-JISA) procedures in any case that involves a JISA and HMRC does not need to be contacted to authorise a withdrawal of this sort from the account. But where the normal procedure is to obtain customer agreement before removing funds, this must be followed in JISA cases too.
JISA providers should only contact HMRC at firstname.lastname@example.org to reverse a subscription if it was paid into a JISA following a mistake by the JISA provider. HMRC will need full details of the circumstances that led to the error. HMRC may also need to consider the subscription history for the account
Closure of the JISA
A JISA can only be closed on:
- the death of the child
- the child reaching their 18th birthday
- direct instruction from HMRC (where the JISA is void)
- when a £nil balance arises in the following circumstances:
- a JISA has been opened and a small initial investment has been made, but contributions then stop and agreed charges then bring the balance down to £nil
- a terminal illness claim has been accepted and the registered contact has withdrawn the funds held in the JISA.
In addition, where all of the investments in a JISA have been transferred, a provider may close the remaining £nil balance account.
A JISA cannot be closed merely because the child has become non-resident in the UK. Further subscriptions can be made to the JISA even when a child becomes non-resident in the UK and that JISA can be transferred between providers, although a new JISA could not be opened on behalf of such a child.
Death of the child
Proof of the death of the child must be obtained before the JISA can be closed. In most cases sight of the original death certificate or the Coroner’s interim document will be sufficient.
Any subscriptions made after the date of death are not valid subscriptions to the JISA. In addition, where a child dies the interest, dividends or gains in respect of investments in their JISA which arise after the date of death to the date of closure are not exempt from tax. But there is no loss of exemption on interest, dividends or gains which arise before the date of death, including any gain treated as arising as a result of the death of the child under the rules for investments in policies of life insurance.
For the purposes of determining whether a claim can be made by a provider in relation to tax deducted from interest, the important date is the payment date. Where the payment date is on or before the date of death any tax deducted can be reclaimed.
JISA providers may apportion interest paid after the date of death into interest accrued:
- up to and including the date of death, which can be treated as arising in the JISA (and therefore paid without deduction of tax)
- from the date of death, which is not exempt from Income Tax and where appropriate interest paid before 6 April 2016 should be paid under deduction of tax at the basic rate
This may lead to some practical problems if providers do not receive notification of death promptly - for example, where the provider has made a claim to, and has received repayment of tax from HMRC on an amount which is no longer exempt from tax, or in respect of subscriptions made after the date of death of the account holder. In such cases, providers must repay HMRC any amounts claimed that were not due, usually by deducting the amount from the next tax claim.
Rights conferred by a JISA insurance policy vest in the personal representatives on the death of the child. The JISA insurance policy must pay out on the death of child and personal representatives must not delay in claiming.
Subject to the JISA terms and conditions, providers should advise the personal representatives that they have the choice of having the:
- JISA investments transferred to them (or a beneficiary)
- provider sell the JISA investments and paying the proceeds to them (or a beneficiary)
Providers must pay any tax deducted to HMRC usually by deduction from the next claim made, under the heading ‘Adjustments to previous claims’.
Providers should provide personal representatives with a statement showing the:
- market value of the investments, other than insurance policies held in the JISA at the date of death, or in the case of a cash JISA, the value of the JISA at the date of death and the gross interest payable in the year of death up to date of death
- original cost price and date of acquisition of any investments purchased after the date of death
- date of disposal and the amount of the net sale proceeds received for each disposal made after the date of death
together with a tax certificate:
- R189K showing any income with a payment date following the date of death if requested
- R185 or section 975 certificate showing the interest and tax deducted if requested
Child’s 18th birthday
On the child’s 18th birthday the account ceases to be a JISA, but any investments held at that date remain in the tax free ISA wrapper until the former child closes the account. An ISA application must be made if fresh subscriptions are to be made (see ISA rollover at age 18).
After age 18, the investments will become subject to the terms and conditions of the ‘adult’ ISA. Managers may decide to send the new or amended terms to the child before their birthday.
The investments held in the JISA at age 18 can continue to benefit from the tax advantages of the JISA but further subscriptions to an ‘adult’ ISA that was a JISA cannot be accepted until the (former) child:
- notifies the ISA manager of his NINO (if he has one)
- provides the details required by the ISA declaration which includes both:
- confirmation that he is resident in the UK
- authorisation that the manager can hold the ISA investments and make claims on his behalf (see authority)
Where this information is not obtained, or where the account holder is not eligible to subscribe to an ‘adult’ ISA (for example because of their residency circumstances), no further subscriptions should be accepted.
Where HM Revenue & Customs instructs that a JISA must be voided the account is not a JISA for any purpose and therefore:
- income arising on the invalid subscriptions must be treated in accordance with voiding and interest on ISA investments - if income has been received net and a claim has been made to HMRC, the tax must be recovered and paid to HMRC as an adjustment on the next claim, if the income was received gross the provider must notify the registered contact that the gross receipt must be reported to HMRC if appropriate
- all life insurance policies held in the JISA must terminate (there is more information on void policies and the termination mechanism at voiding and removing policies of life insurance ISAs
- the balance of investments and income on those investments are the child’s
See also repair – incomplete or incorrect application form for circumstances where the manager can void the JISA without contacting HMRC.
Providers should inform the registered contact of:
- the date and amount of each income payment received in respect of the investments in the JISA, and the amount of tax deducted (if any) from those income payments. And, if the investments have since been sold, the date and amount of each income payment received in respect of the replacement investments and the amount of tax deducted from those income payments
- the date and amount of any interest paid or credited on cash held in the JISA and the amount of tax deducted from that interest
- the original cost price, any incidental costs of acquisition and date of acquisition of investments in the JISA and, if they have since been sold, the original cost price, any incidental costs of acquisition and date of acquisition of the replacement investments
- the date of disposal, the amount of the sale proceeds and any incidental costs of disposal of investments in the JISA and, if they have since been sold, the date of disposal, amount of the sale proceeds and any incidental costs of disposal of the replacement investments,
- for insurance component products, the provider will need to ascertain the amounts of any gains treated as arising in order to calculate how much tax to deduct, and must inform them of all of the following:
- the amount of premiums paid and the date on which they were paid
- the benefits payable on death, maturity or surrender and the date of the event
- the amount of tax deducted in respect of the benefits payable on death, maturity or surrender
- the amount of benefits actually paid to the child, after all deductions of tax
- that the settlements legislation may apply to any income generated by gifts from the child’s parents if the total from all parental gifts exceeds £100
Providers should advise the registered contact that, where appropriate, they should report details to the child’s tax office of the interest, dividends, chargeable gains and allowable losses and chargeable gains and corresponding deficiencies arising in respect of the void subscriptions for the tax year in which they arose.
Providers should supply tax certificates R189K, R185 or section 975 certificates (or their own tax vouchers) on request to the registered contact showing, respectively, the dividends and the gross interest credited and tax deducted.
Voiding the JISA does not mean that the account must close; it simply means that the JISA wrapper around the investments must be removed. So if there have been other contributions to the account it will be for the JISA provider to agree with the registered contact what is to happen to these. The terms and conditions of the account may require the account to close and the contributions to be sent to the child or they may allow the sums to be moved to a non-JISA account
Void life insurance policies and chargeable events
Where HM Revenue & Customs instructs that a JISA must be voided, any policies held within the JISA must terminate, unless they have already been surrendered, matured or paid out on death before the provider discovered that the JISA must be voided.
The policy will terminate in accordance with the contractual terms when it comes to the notice of the account provider that the JISA must be voided. It does not terminate when the JISA first failed the conditions (which may have been at inception or some time subsequently) or when notice of the failure reaches the insurer (unless the insurer is also the JISA provider).
Where the provider is not the insurer, it should notify the insurer of the failure within 30 days of it coming to the provider’s notice that the JISA must be voided. Notice may be given in writing or in some other way.
A void policy remains part of the JISA business of the insurer throughout its existence, notwithstanding the fact that the conditions to be a qualifying investment in a valid JISA will have been breached at some point during the policy’s life.
The special rules that tax gains on life insurance policies, often known as the chargeable event rules, are used to recover tax relief that is not due on a policy which is held within a JISA which is voided. The exemption from tax on chargeable event gains held within a JISA does not apply. Tax liability may arise on the forced termination of the void policy and on any previous chargeable events which took place before the provider learns that the JISA must be voided.
If a policy terminates in accordance with the contractual terms when it comes to the notice of the account provider that the JISA must be voided. Then this ‘termination event’ is deemed to be a surrender chargeable event occurring at the date that it came to the notice of the JISA provider that the JISA must be voided.
Other chargeable events which may be relevant for JISAs are the surrender, maturity or ending of the policy on death if any of these events occur before the provider discovers the JISA must be voided, and “excesses” as a result of part surrenders of rights conferred by the policy.
Providers must normally account for tax at the basic rate in force for the year of assessment in which the chargeable event occurred. Where appropriate, the JISA provider should account for tax by deducting the amount due from their next claim to HMRC Repayments (see annual returns and tax claims). The amount of tax deducted by the provider must be reported to the child.
But HMRC Repayments have the power to assess the child, via the registered contact, to recover tax if the funds remaining in the JISA are insufficient or the JISA has been closed before the provider is aware that a recovery may be necessary.
The following details of chargeable event gains must be reported to the policyholder within 3 months of the event coming to the notice of the insurer:
- the nature of the chargeable event
- the date of the chargeable event
- the amount of the gain
- the number of years for top-slicing relief.
Where the insurer is also the provider, this information should already be included in the details to be provided by the provider (as per the guidance on void JISAs). If so, there is no need to duplicate this information in a separate chargeable event certificate.
Where the amount of the gain exceeds half the basic rate limit for the year of assessment in which the gain arises then the insurer must also report the information listed above (for chargeable event gains) to HM Revenue & Customs at the Centre for Revenue Intelligence within 3 months of the insurer receiving notice that the JISA must be voided.
The parents of a child who is terminally ill may make a claim to HMRC to be allowed to access the funds in the child’s JISA. If the claim is agreed, HMRC will issue a letter to the registered contact letting them know that the funds in the JISA can be withdrawn. The JISA provider should ask for sight of the letter and retain it (or a copy of it). HMRC will not send a letter to the provider.
The letter to the parent will contain a contact phone number, which the provider can use to contact HMRC.
The only person who can withdraw money from the JISA on behalf of the child is the registered contact. In most cases the withdrawal will be in cash, but if the provider allows, the investments in the account can be transferred to the registered contact directly. This would be most useful where sale of the investments would attract an early redemption penalty. In such circumstances, the account may be closed, and the total balance withdrawn by the registered contact. The registered contact may prefer to keep the account open and only withdraw part of the balance. In these cases, this should be possible, subject to any minimum balance that the provider requires for the account to be kept open.
HM Treasury publishes a consolidated list of individuals and entities subject to financial sanctions imposed by the United Nations, European Union and HM Government that are in legal effect in the UK. The consolidated list can be found in Who is subject to financial sanctions in the UK?.
Funds and economic resources belonging to, owned, held or controlled by persons on the consolidated list must be frozen. It is prohibited to make funds or economic resources available, directly or indirectly, to or for the benefit of such persons without a licence to do so from the Treasury.
Accordingly, if the beneficial owner and/or account holder of a JISA is a person included on the consolidated list, the assets held in the JISA must be frozen and no funds made available to that person unless licensed by the Treasury. These prohibitions will no longer apply if the person is removed from the consolidated list and therefore no longer subject to the asset freeze restrictions. It is very unusual for minors to be designated.
Where HMRC have agreed that cash can be withdrawn from the JISA due to the death or terminal illness of the child, funds must not be made available to the registered contact if he or she is a person included on the consolidated list.