Is it a no-brainer that anyone with children living in the UK should open a JISA before return to Ireland?

[ronaldo]

A Junior ISA is a tax-free wrapper available in the UK for children under 18 - similar to a standard ISA for adults. There is no CGT or income tax payable on investment gains or dividends.

Junior ISA's

Your child must be both:

• under 18
• living in the UK

Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child.

The child can take control of the account when they’re 16, but cannot withdraw the money until they turn 18.

Source: Official UK Government JISA Overview

Key Point: Click for UK Government Source:
If your child moves abroad, you can still add cash to their Junior ISA.


Does anyone have information on how such an account would be taxed upon return to Ireland? I'm aware that, in Ireland, bare trusts are the closest to this, but are still a significantly different structure. If a child turns 16 and decides to take a punt on a company facing a high risk of bankruptcy, there is absolutely nothing a parent can do. The account isn't like bare trust where the account is in a parents name with the child named as a beneficiary - it's in the childs name.

In Ireland, I believe the bare trust structure enables CGT to apply to the child, and them to avail of the annual tax-free allowance, but income tax rolls up to the parent.

Would I be correct in assuming that a JISA belonging to a child, upon return to Ireland, would be different and the income would apply to the child as opposed to the parent? If this were the case, it would reduce the administrative effort significantly because you are only obliged to submit a tax return if your taxable non-PAYE income is more than €5,000 a year. This would be in addition to the fact that there would be no liability to USC or Income tax.

If the above all holds true, it would be highly beneficial to open an account for a child, probably one with no maintenance fees like with X-O, before a child returns to Ireland. That would allow future investments within the structure of up to £9000 per year (based on the current years subscription limits) and the account can be funded by anyone (it just has to be opened by a parent).

The above assumes investment into shares directly as opposed to funds or ETF's (to which an exit tax applies and there are no allowances that I'm aware of).

 

[Markel]

While I’m not a tax accountant, would it not be akin to an ISA for an adult? The fact that it’s tax favoured in the UK matters not for an Irish resident, excepting all potential domicile etc stuff that may or may not apply.

 

[ronaldo]

While I’m not a tax accountant, would it not be akin to an ISA for an adult? The fact that it’s tax favoured in the UK matters not for an Irish resident, excepting all potential domicile etc stuff that may or may not apply.

Yes, in the vast majority of cases, an ISA would be taxed as if it were unwrapped upon return to Ireland.

My point is that if the JISA follows the same rules, then a child with no other income and capital gains would have significant benefits if the parents weren't considered from the point of view of both CGT and income tax.

A bare trust in Ireland is an account held by a parent with the child named as a beneficiary. A JISA is the childs account and they get control much sooner, at 16, with nothing a parent can do about their investment choices (though they can only withdraw funds at 18).

 

[ronaldo]

From a UK government perspective, a major difference between an ISA and JISA is that you cannot contribute to your ISA after you become resident of another country - but you are permitted to continue to contribute to a childs JISA until the child is 18.

This is why I call opening one a potential no-brainer - you don't even need to fund it before return to Ireland, just have it opened.

 

[Marc]

A Junior ISA is a tax-free wrapper available in the UK for children under 18 - similar to a standard ISA for adults. There is no CGT or income tax payable on investment gains or dividends.

Junior ISA's

Your child must be both:

• under 18
• living in the UK

Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child.

The child can take control of the account when they’re 16, but cannot withdraw the money until they turn 18.

Source: Official UK Government JISA Overview

Key Point: Click for UK Government Source:
If your child moves abroad, you can still add cash to their Junior ISA.


Does anyone have information on how such an account would be taxed upon return to Ireland? I'm aware that, in Ireland, bare trusts are the closest to this, but are still a significantly different structure. If a child turns 16 and decides to take a punt on a company facing a high risk of bankruptcy, there is absolutely nothing a parent can do. The account isn't like bare trust where the account is in a parents name with the child named as a beneficiary - it's in the childs name.

In Ireland, I believe the bare trust structure enables CGT to apply to the child, and them to avail of the annual tax-free allowance, but income tax rolls up to the parent.

Would I be correct in assuming that a JISA belonging to a child, upon return to Ireland, would be different and the income would apply to the child as opposed to the parent? If this were the case, it would reduce the administrative effort significantly because you are only obliged to submit a tax return if your taxable non-PAYE income is more than €5,000 a year. This would be in addition to the fact that there would be no liability to USC or Income tax.

If the above all holds true, it would be highly beneficial to open an account for a child, probably one with no maintenance fees like with X-O, before a child returns to Ireland. That would allow future investments within the structure of up to £9000 per year (based on the current years subscription limits) and the account can be funded by anyone (it just has to be opened by a parent).

The above assumes investment into shares directly as opposed to funds or ETF's (to which an exit tax applies and there are no allowances that I'm aware of).

This would only work if the underlying investment is subject to general tax principles.

Most U.K. ISA accounts will hold an OEIC which prior to Brexit was a UCITs so the Irish tax treatment would be exit tax with a notional deemed 41% tax charge on each 8th anniversary from INCEPTION.

So this means that you should at the very least rebase an ISA or JISA before becoming Irish tax resident.

So good idea that is likely to fall down on the execution

Marc Westlake CFP®, TEP, EFP, APFS, QFA

E:[email protected]

To schedule a call

 

[ronaldo]

This would only work if the underlying investment is subject to general tax principles.

Most U.K. ISA accounts will hold an OEIC which prior to Brexit was a UCITs so the Irish tax treatment would be exit tax with a notional deemed 41% tax charge on each 8th anniversary from INCEPTION.

So this means that you should at the very least rebase an ISA or JISA before becoming Irish tax resident.

So good idea that is likely to fall down on the execution

Marc Westlake CFP®, TEP, EFP, APFS, QFA

E:[email protected]

To schedule a call

To add some perspective, I requested my brother to open a JISA for my niece and nephew. They were born in the UK but are returning to Ireland this year.

Into their JISA, I've invested directly in four separate shares (GSK, HLN, PHNX and SKG). Therefore, this wouldn't be subjected to exit tax or deemed disposal rules.

Your comment that it's a good idea that is likely to fall down on the execution is entirely correct and I should have placed more emphasis on the final line of my original post where I state:

The above assumes investment into shares directly as opposed to funds or ETF's (to which an exit tax applies and there are no allowances that I'm aware of).

 

[Marc]

You should be aware that if any of the trustees are Irish resident then the bare trust will need to pay Irish tax and your dividends would be taxed at 40% until the children are 18

 

[ronaldo]

You should be aware that if any of the trustees are Irish resident then the bare trust will need to pay Irish tax and your dividends would be taxed at 40% until the children are 18

But my query is related to an assumption that a JISA isn't in any way similar to a bare trust. It's a completely different structure. A JISA is an account in a childs name whilst a bare trust is an account held in a parents name with a child named as a beneficiary.

It is my belief that a JISA is tied more to the child versus a traditional bare trust held by a parent in Ireland with the child named as a beneficiary.

A google search of JISA trustee returns this result which I must have a look at now.

 

[Marc]

It seems very clear that under U.K. law this is an account in the child’s name.

The question then is would Irish Revenue accept this? In other words does the beneficial ownership imply a bare trust. One for the lawyers I’m afraid.

I’ve always recommended where possible structuring childrens plans as a general investment account in a bare trust with the trustees in the U.K. to remove any doubt.

These terms and conditions must meet the conditions set down in JISA legislation and must specify that:

1. The JISA investments shall be in the beneficial ownership of the child.
2. The title to the ISA investments will be registered: * in the name of the provider (you) * in the name of your nominee * jointly in one of them and the child or registered contact
3. Share certificates or other documents showing the title to a JISA investment will be held by you or as directed by you.

Junior Individual Savings Accounts (JISAs) for managers: terms and conditions

The general terms and conditions ISA managers must provide for all JISAs including transfers.

www.gov.uk

 

[ronaldo]

These terms and conditions must meet the conditions set down in JISA legislation and must specify that:

1. The JISA investments shall be in the beneficial ownership of the child.
2. The title to the ISA investments will be registered: * in the name of the provider (you) * in the name of your nominee * jointly in one of them and the child or registered contact
3. Share certificates or other documents showing the title to a JISA investment will be held by you or as directed by you.

Junior Individual Savings Accounts (JISAs) for managers: terms and conditions

The general terms and conditions ISA managers must provide for all JISAs including transfers.

www.gov.uk

Those are the terms set out to the company managing the JISA - in the case of my niece and nephew, X-O.co.uk. The title to the shares are held in the name of the provider. In the case of the above information, 'you' means X-O.co.uk, or whichever other provider you happen to open the JISA with.

If you look at https://www.x-o.co.uk/jisa-account.html, you'll see the statement "Only a person with parental responsibility for an eligible child (or the child themselves if they are aged between 16 and 18) can apply to open a JISA and become the registered contact.".

Technically, the parent is only a registered contact and the provider holds the title to the shares. The above government guidelines do also reference the 'registered contact'.

I don't see how the Irish revenue could argue that a parent owes income tax on dividends paid by shares for which X-O, or some other provider, holds the title, the account that will eventually benefit is held in a childs name and the parent is merely a point of contact.

 

[ronaldo]

The question then is would Irish Revenue accept this? In other words does the beneficial ownership imply a bare trust. One for the lawyers I’m afraid.

It may be one for the lawyers.

I'm no lawyer but an Irish bare trust has income tax roll up to the holder of the title of the shares - the parent in the case of a traditional bare trust set up in this country. If the revenue were to try to argue that the JISA setup implies a bare trust, surely the tax rolls up to the UK provider and no Irish tax is due. They couldn't possibly argue that the person registered as a point of contact owes a thing.

 

[Marc]

A bare trust is commonly used where assets are held on behalf of minor children, who, because of their minority, may not hold an interest in trust property directly. A bare trust can be in writing or implied

Im not saying it will be taxable in Ireland I’m saying that in all these things there is always room for some doubt.

 

[ronaldo]

A bare trust is commonly used where assets are held on behalf of minor children, who, because of their minority, may not hold an interest in trust property directly. A bare trust can be in writing or implied

I thought it had to be in writing and wasn't aware of the idea of an implied trust - but if the Irish Revenue were to argue that an implied trust exists, my argument would be that the bare trust exists between the provider, who holds title to the shares, and the child - not the point of contact.

Therefore, I'd argue that responsibility for tax under this 'arguable' bare trust falls on the provider.

There are no circumstances under which a UK JISA provider could owe tax to the Irish government and if the Irish Revenue disagree, let them take it up with them

 

[ronaldo]

Im not saying it will be taxable in Ireland I’m saying that in all these things there is always room for some doubt.

To this point, although I don't believe it would make any difference, I'd probably avoid investing in shares listed on the Irish stock exchange - just to remove the bit of doubt on how dividends paid by Irish companies are dealt with might add to the equation.

 

[ronaldo]

One point to note, at age 18, the JISA converts automatically to an ISA and the rules change completely.

 

[Gordon Gekko]

Potential CRBOT registration requirements also.

I don’t really see the benefit of opening an ISA or JISA before moving to Ireland, given that these admittedly great structures have no status here.

 

[ronaldo]

Potential CRBOT registration requirements also.

I don’t really see the benefit of opening an ISA or JISA before moving to Ireland, given that these admittedly great structures have no status here.

The benefit is that it brings the parent ownership out of the equation and, as far as I can see, means that income tax is payable by the child as opposed to the parent.

In addition to income tax not falling under the parents marginal rate (they are nothing but a point of contact in the whole structure and hold no title to the shares or assets held within the structure), this would remove the need for any submission of tax returns unless dividend income exceeds €5,000. So no tax and no paperwork.

Basically, income tax can only ever be due by one of three parties:

The child? Okay, they have allowances, no liability to USC and no requirement to submit tax returns until dividend income exceeds €5,000.

The parent? Why? They are all but a point of contact.

The UK provider of the structure? Under what circumstances are they liable for Irish tax on dividends paid by, for example, a UK company?

 

[ronaldo]

Potential CRBOT registration requirements also.

Possibly the reason a child must be UK resident when the account is opened. If those registration requirements fall on the entity that holds the title to the assets, I can see why they'd only want to comply with UK legislation.

The fact that they allow continued payments into the plan would lead me to believe that their legal teams are certain that no registration requirements exist in other countries for such a structure after initial setup.

 

[ronaldo]

Potential CRBOT registration requirements also.

I don’t really see the benefit of opening an ISA or JISA before moving to Ireland, given that these admittedly great structures have no status here.

There is definitely no benefit whatsoever to opening an ISA before moving to Ireland as you cannot add to it whilst resident elsewhere and ownership is your own.

If you were permitted to add to it whilst resident elsewhere, it would be an advantage only if intending to become UK resident once again in the future, in which case, you'd avoid CGT on long term holdings. Unfortunately, this is not permitted.

A JISA, I believe, is a different story.

 

[Gordon Gekko]

The benefit is that it brings the parent ownership out of the equation and, as far as I can see, means that income tax is payable by the child as opposed to the parent.

In addition to income tax not falling under the parents marginal rate (they are nothing but a point of contact in the whole structure and hold no title to the shares or assets held within the structure), this would remove the need for any submission of tax returns unless dividend income exceeds €5,000. So no tax and no paperwork.

Basically, income tax can only ever be due by one of three parties:

The child? Okay, they have allowances, no liability to USC and no requirement to submit tax returns until dividend income exceeds €5,000.

The parent? Why? They are all but a point of contact.

The UK provider of the structure? Under what circumstances are they liable for Irish tax on dividends paid by, for example, a UK company?

Isn’t income tax assessed on the parent/settlor in such circumstances?

One of those life company bare trusts probably takes care of the tax obligations.