Children continue to miss out on benefits of tax-free savings

Children in the UK are continuing to miss out on the benefits of tax-free savings, according to new research.

The research, carried out by Halifax, revealed an estimated annual shortfall of £5.1bn in unused Junior ISA (JISA) allowances.

HMRC’s updated ISA statistics published last week showed a 238% increase in JISA subscriptions since last year, with a total of 295,000 JISAs open at the end of the 2012/2013 tax year.

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However, only 15% of parents whose children qualify for a JISA have opened one. And of those who have, only 10% managed to save the full allowance in 2012/2013, with the same proportion committed to utilising the total 2013/2014 allowance.

The current shortfall highlights not only the unused allowance of existing JISA customers, but also the missed opportunity of parents with children who qualify for a JISA but do not have an account.

Richard Fearon, head of Halifax Savings, said: “It is important for parents to consider the longer term tax free benefits JISAs provide. Not only do they protect your children’s savings from any tax that would otherwise be due on the interest earned, but JISAs also provide a great head start when the child grows up, with the account retaining its tax free status when it matures into an adult Cash ISA.

“There is clearly a lack of awareness of the benefits of tax free savings for children and as a result parents need to be encouraged to consider JISAs as a viable savings option to ensure allowances are maximised more effectively in future.”