Budget 2020: Junior Isa allowance and Lifetime allowance changes
The Junior Isa limit will rise notably, from £4,368 to £9,000. This same limit will apply to Child Tr…
11th March 2020 14:25
by Kyle Caldwell from interactive investor
The Junior Isa limit will rise notably, from £4,368 to £9,000. This same limit will apply to Child Trust Funds.
Ahead of the Budget, there was barely any mention in the rumour mill in terms of potential changes to the tax-efficient investment landscape, and so it proved.
The Isa allowance, which stands at £20,000 a year, has remained untouched. The old process was for the Isa allowance to rise with inflation every year, but this has not happened since it was raised to £20,000 in April 2017. The allowance is the most generous it has ever been, and changes to increase it were not expected.
The Junior Isa limit will, however, will rise notably, from £4,368 to £9,000. This same limit will apply to Child Trust Funds (CTFs). It has previously risen every year in line with inflation.
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The Lifetime Allowance (LTA) will also rise in line with inflation (consumer price index) from £1,055,000 to £1,073,100 in the new tax year – 6 April 2020.
The LTA, essentially a stealth tax on investment success, has been progressively whittled away to boost the Treasury coffers since it was introduced in 2006 by the then chancellor Gordon Brown. But in 2017, when the LTA stood at £1 million, it was announced that it would from now on be increased each year in line with inflation. Therefore, today’s announcement does not come as a surprise.
Moira O’Neill, head of personal finance at interactive investor, Money Observer’s parent company, says: “The more than doubling of the Junior ISA allowance will be a boost for parents looking to invest for their children and also a great way for grandparents to use up their annual gift allowances or making a potentially exempt transfer.
“In reality, being able to invest £9,000 a year per child is pie in the sky for most families, even when resources are combined across the generations. For the lucky few, the Junior ISA would be worth £265,851 if £9,000 was invested from birth every year with a 5% annual return – by no means guaranteed, but a staggering amount for the lucky few who have money like this to set aside. With a 3% annual return, the pot at 18 would be £217,051."
More Budget coverage
- Budget 2020: the winners and losers
- Relief for higher-rate taxpayers as no changes to pension tax relief system
- Pensions tax allowance taper to be reformed
- Government's plan to try and counter coronavirus shock
- Boost to national living wage to bolster income for low earners
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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