The rules on subscriptions and how to repair a Junior ISA if you're an ISA manager.
Subscriptions to a JISA
Who can subscribe to a JISA
Any person can subscribe to a JISA by way of a cash payment. The person subscribing need not be resident in the UK, nor do they have to be related to the child. Providers are not required to obtain the consent of the registered contact or account holder before accepting subscriptions from any person. However providers may operate their own rules concerning the acceptance or refusal of any particular subscription, subject to their normal regulatory requirements. Subscriptions to the JISA can be made even if the child is not present in the UK. For information on returning subscriptions when a JISA application is cancelled please refer to the guidance within applications to open an ISA.
It must be made clear to the person subscribing that the amount subscribed is a gift to the child, and as such cannot be repaid to the subscriber if at a later date the subscriber changes their mind. This information can be given by way of a written statement on any deposit slips, leaflets, other provider literature, posters or internet site or verbally for a phone subscription. There is no requirement for a formal signed agreement from the subscriber before each subscription is made.
However, providers may accept subscriptions where the person subscribing has not contacted them prior to subscription (for example, by cheque through the post), and where the provider is therefore unable to comply.
When subscriptions to a JISA can be accepted
A JISA is opened on the date that a valid application and opening subscription are made. Any subscriptions accepted prior to the opening of the JISA - for example, where a withdrawal period has not expired - cannot be placed in the JISA until the date of opening.
From 6 April 2017 the annual subscription limit increased in line with the Consumer Prices Index. Up to £4,128 can be subscribed to a JISA in the tax year 2015 to 2016. Any part of the limit which is not used is lost - it cannot be carried forward or back to other years. Providers must ensure that subscriptions in any tax year do not, to their knowledge, exceed the limits. Interest, dividends or other income arising from the investments held in the JISA do not count toward the annual subscription limit.
The overall subscription limit for the tax year can be divided between subscriptions to a cash JISA and a stocks and shares JISA as the registered contact directs. If the overall limit is exceeded, the excess is not a subscription to a JISA and must be removed from the JISA tax wrapper. In determining how any excess should be treated, account providers should operate their normal processes. If the excess is identified at the time of making the subscription, the excess can simply be refused. But if the excess has entered the JISA, and either the provider or HMRC (after they review the annual reports made by providers) have identified it, HMRC will give instructions to providers on the action they need to take on a case by case basis.
The child, the child’s parents or other relatives, local authorities, charities or any other person can subscribe to the JISA. All subscriptions must be made in cash, which may include payment by cheque, direct debit, charge card, credit card, direct credit and standing order - depending on the payment methods accepted by the account provider. JISA rules do not require providers to identify or record the identity of the third party contributor, or to advise the registered contact or account holder of this fact, although there may be other regulatory reasons providers may choose to do this.
The registered contact cannot prevent any subscription to the JISA, although of course they can choose not to divulge which provider holds the account and so effectively prevent donations. Normal data protection and confidentiality rules apply, so providers cannot divulge account details to anyone except the registered contact.
Subscriptions by cheque are valid pending clearance of the cheque. If the cheque is not honoured then no subscription has been made - the amount of the failed subscription will not count toward the subscription limit - and no gift has been made to the child. Any subscriptions returned under the direct debit indemnity scheme are treated in the same way.
The provider may impose conditions on opening and maintaining a JISA, such as requiring an initial minimum lump sum subscription or minimum regular payments. Where a provider operates general account rules that would prevent it accepting particular subscriptions (for example, subscriptions made from particular countries) these rules may be applied in the normal way, subject to the normal regulatory requirements.
The date of subscription may be important where 2 or more parties wish to subscribe to the JISA, and together the subscriptions are greater than the amount of unused subscription limit. For the purpose of determining which is the earlier of the subscriptions please see the guidance at date of subscription.
Once a subscription is made to a JISA, the cash, and any investments bought with the cash, are beneficially owned by the child. The subscriber cannot recover their subscription, which they have confirmed is a gift to the child. Nor can they (unless they are the registered contact) give any instruction as to how the cash is to be managed or used in the JISA. If a subscription is made into the wrong JISA by the provider in error, contrary to the donor’s instructions, the provider can take the subscription out of the JISA and place it in the correct JISA. Amounts removed from JISAs and replaced in this way will only count as a single subscription for the purposes of the annual subscription limit.
Investments held by a person outside a JISA can be sold, and the proceeds subscribed to the JISA. The Capital Gains Tax rules will apply to any disposal.
The subscription year is based on tax years and runs from 6 April to the following 5 April. For the year in which a JISA opens the subscription year starts on the date of opening and ends on the next 5 April.
Amounts in excess of the JISA annual subscription limit cannot go into the JISA until the start of the next tax year. Providers may, if they wish, set up feeder accounts for excess subscriptions. They are not required to do so under the JISA rules, and this will be a matter for agreement between the provider and account holder/registered contact.
Subscriptions between ages 16 and age 18
When a child reaches age 16 they can apply for an cash ISA which they can subscribe to in addition to any subscriptions made to their JISA(s). Holding both a cash JISA and a cash ISA does not breach the JISA rule that the child can only have one JISA account of each type, and the subscription limits for all ISA products apply independently of whether or not a child holds, or has held, a JISA in the relevant year.
Therefore, in the tax year in which the child turns 16 they can subscribe up to the JISA limit, and from their birthday they can, in addition, subscribe up to the overall ISA limit to a cash ISA.
In addition, from the start of the tax year the child turns 18, they can:
- use their whole JISA subscription limit (even though the JISA will be held for a part-year only)
- subscribe the overall ISA limit to a cash ISA
- from their birthday, invest in a stocks and shares ISA, an innovative finance ISA, or a Lifetime ISA subject to the subscription limits
Direct Debit indemnity scheme
Under this scheme, where money is taken out of an account by direct debit by mistake, the account holder can claim the return of the money. The account holder’s bank repays the money to the account holder, and claims back that amount from the recipient bank - in effect the transaction is unwound. Subscribers to a JISA might make a claim under the direct debit indemnity scheme.
For JISAs, in cases where the subscriptions made to a JISA are unwound under the direct debit indemnity scheme, the subscription will be treated as not made (in the same way as for a failed cheque) and no gift will have been made to the child. Any such amount is therefore disregarded for the purposes of the JISA subscription limit. If any tax relief on interest has been claimed from HMRC in respect of the unwound subscription it must be repaid to HMRC, and any interest arising may be subject to deduction of tax. A subscription made by direct debit may not be unwound unless a successful claim is made under the indemnity scheme.
Building society bonus payment
Building societies can pay bonuses to their members in respect of the products they hold and this can include children who hold a JISA. Bonuses paid in respect of JISAs are exempt from tax and do not count towards the annual JISA subscription limit if they are paid directly into the JISA account. The definition of building society bonus for JISA purposes specifically excludes any bonus arising from demutualisation, merger or sale of a building society subsidiary.
Qualifying investments for the JISA
The investments that providers may purchase, make or hold in a JISA mirror the investments that can be held in an ISA so the guidance on ISA subscriptions, stock and shares ISAs, cash ISAs and life insurance policies in ISAs apply equally to cash and stocks and shares JISAs. The single exception being that shares acquired under a SAYE option scheme, profit sharing scheme or Share Incentive Plan (SIP) cannot be transferred into a stocks and shares JISA (see guidance on shares emerging from a schedule 3 SAYE option or Schedule 2 SIP).
In general, the current rules for ISAs that include an insurance policy, and the additional requirements on ‘insurer-managers’ who are also account providers (see life insurance policies in ISAs) apply equally for JISAs that include an insurance policy. This includes the rules concerning eligible policies, vesting of title to policies, termination of policies in certain circumstances, and the prohibition of transfers, assignment or assignation of policies. However in relation to JISA:
- the life assured must be that of the child holding the account
- where the insurer issuing a policy is also an account manager for the JISA account, title to the policy must be vested in the registered contact
- the policy must not be transferred or assigned, including to the child holding the account or the registered contact - however, for JISA this prohibition is subject to exceptions where:
- amounts may be withdrawn from a JISA (see withdrawals from a JISA)
- an account is transferred to another provider
- there is a change to the registered contact for the account
- the account holder turns 18, and the account therefore ceases to be a JISA
The usual circumstances in which a policy must automatically terminate (where the relevant conditions in ISA legislation are not met or weren’t met when the insurance was made - see (voiding and removing policies of life insurance in ISAs) are subject to exceptions where a JISA can be ‘repaired’ or otherwise remedied within a reasonable time.
Management of the JISA
Common management rules
All of the guidance in managing an isa applies to the management of JISAs.
A JISA may be found to be invalid, for example, because the investments held in the JISA are non-qualifying, or the registered contact does not have parental responsibility. Invalid JISAs can, in nearly all circumstances, continue as JISAs after corrective action or repair.
An invalid JISA must always be repaired except where the child in question is not eligible for a JISA or where the child already has another valid JISA of the same type. In these limited circumstances, no repair is possible, and the account can’t be a JISA so must be voided. Other than cases where the child is not eligible for a JISA, a provider should never void a JISA except where instructed to do so by HMRC.
It is not necessary for a provider to obtain approval from HMRC before carrying out a routine repair or corrective action on an account. Providers should keep a detailed record of all JISAs repaired (to be made available at the next HMRC inspection). Repaired JISAs will be treated for all purposes as if they had been valid at all times, except for determining whether a penalty is chargeable.
Where a provider finds that a JISA is invalid they should immediately take steps to repair the JISA. The following sections cover most of the errors that could give rise to an invalid JISA, but it is not an exhaustive list. If a provider finds other situations where they are unclear as to how to repair the JISA they should contact HMRC using the email address.
Repairs – removal of excess subscriptions
Excess subscriptions, investments purchased with those subscriptions and any income arising on those subscriptions or investments must be removed from the JISA. Any tax claimed from HMRC on income arising on the excess subscriptions, must be recovered by the provider, normally by deduction from the next claim under the heading ‘Adjustments to previous claims’. If the provider is a building society or deposit-taker any tax on interest paid gross before 6 April 2016 should be accounted for on their next CT61 return form. If returns are not being made, a cheque should be sent to HMRC (see guidance on interim claims).
Any income arising on the excess subscriptions or investments purchased with those subscriptions is subject to tax, so the registered contact, and where appropriate the child, should be informed of this by the provider. In many cases identification of the investments acquired with excess subscriptions will be simple - there will have been one subscription to the JISA and purchase of one type of investment. In some cases identification of the investments acquired with excess subscriptions will be more difficult. The provider can select the investments that represent the excess subscriptions, either by taking a fraction of the investments held in the JISA at the date of repair which represents the excess subscriptions or by following the subscriptions through the JISA and identifying the relevant investments.
Where a JISA includes a life insurance policy and excess subscriptions have been applied as a premium to the policy, the JISA may be repaired by making a part surrender of the policy of an amount equal to the over-subscription and withdrawing that amount from the JISA. No tax will be charged on any chargeable event gain arising from the part surrender and there will not be a requirement to terminate the policy in these circumstances.
Repair – incomplete or incorrect application form
In general, the registered contact should be asked to complete the form, or complete a new form with a reference to the original form. The JISA is then treated as repaired and no further action is needed. If the registered contact refuses to do so - or is not eligible to make such an application - the account is not to be treated as a JISA and can’t benefit from the relevant tax advantages afforded by JISA status.
JISA opened by a parent who later informs the manager that the child is eligible for a CTF
This could mean that the child already has a CTF or has become entitled to one - for example, where a Child Benefit appeal for a period before 4 January 2011 is settled. The manager needs to have this confirmed in writing for their records. They can then remove the JISA wrapper from the account. If the parent does not provide confirmation in writing the manager must flag the account so that no further subscriptions are accepted and no new management instructions can be accepted.
JISA opened by a parent who then informs the manager that they or the other parent have opened a JISA elsewhere
If the other JISA is of another type, then no further action needed. If it is of the same type, then one of them must cease to be treated as a JISA. The first account opened is the valid JISA so the second must be closed. The manager should obtain confirmation in writing that either, the JISA with them is the later account in which case the JISA wrapper can be removed from the account or the JISA with them is the valid account and that the wrapper has been removed from the invalid account, or it has been closed. The manager can then continue to accept subscriptions. If neither confirmation is received the manager must flag the account so that no further subscriptions can be accepted and no new instructions can be accepted.
JISA opened and the manager is then informed that the registered contact does not have parental responsibility for the child
The manager should seek confirmation from the existing registered contact that the account opening declaration was invalid.
If confirmation is received, or the existing registered contact fails to respond, the account can continue if someone with parental responsibility steps forward and completes an application to be registered contact. The manager does not need the agreement of the existing registered contact and the application should be treated as if the existing registered contact cannot be contacted (see change to a registered contact – existing registered contact).
If confirmation that the declaration is invalid is received, but no one with parental responsibility steps forward, the JISA wrapper should be removed from the account.
If the existing registered contact fails to respond, but no one with parental responsibility steps forward, the account must be flagged so that no further subscriptions or management instructions can be accepted.
Repair – non-qualifying investments
If the provider finds that non-qualifying investments are held in a JISA, the JISA must be repaired by selling the non-qualifying investment, except if it is a life insurance policy in which case, the policy must be surrendered. Insurers should not provide the wrong sort of policy as a JISA investment. The proceeds of the sale or surrender of the investments must remain within the JISA and used to buy qualifying investments, which need not be of the same type as the investments sold or surrendered. Any income, capital gains or chargeable event gains arising on these non-qualifying investments is taxable in the same way as if the JISA was made void, except of course the proceeds will not be returned to the child.
JISA as security for a loan
A JISA cannot be used as security for a loan. Any assignment of, or agreement to assign investments in a JISA and any charge on or agreement to charge the investments in a JISA has no standing in law - it is ineffective. Although, this requirement does not preclude any assignment of title that is necessary where a JISA is transferred or where registered contact status for the account is transferred.
ISA rollover at age 18
When the account holder turns 18, the rules specific to JISA no longer apply. Managers should contact the account holder before their birthday to discuss future saving options, but can apply their normal processes in this regard. The default position is that the investments must remain in a tax free wrapper. Where the investments are applied to a cash or stocks and shares ISA, managers can either continue to use the same account number or allocate a new one depending on what suits their systems and processes.
On their 18th birthday the child can access the savings in the (former) JISA and make withdrawals. There are no specific ISA rules about identification checks that need to be made so managers should proceed as they would with any other type of account and conduct identification and anti-money laundering checks as appropriate under their normal rules and processes.
Once the JISA account holder turns 18, any savings in the account that are not immediately withdrawn will stay within the ISA wrapper and the same tax advantages will apply.
If the investor wishes to make subscriptions after their 18th birthday they will need to provide their National Insurance number (if they have one), confirm their residence status to the manager and also make the standard ISA declaration and authority. Providers may however apply any other requirements that they consider appropriate - including requiring a full application to subscribe to an ISA, as if this was an entirely new account.