Article at a glance
- Gifting money to children or grandchildren through a Junior ISA can be a great way to reduce your inheritance tax bill
- The junior ISA tax-free allowance is currently £9,000 per tax year
- A Junior ISA benefits from tax-free income and growth
- When the child turns 18, they become the beneficial owner and can access the money
What is a Junior ISA?
A Junior ISA, or JISA, is an individual savings account for children under the age of 18. Similar to adult ISAs, Junior ISAs offer tax-free growth, so the child doesn’t have to pay any income tax or capital gains tax. It’s possible to open a Junior Cash ISA and a Junior Stocks & Shares ISA, but you cannot have more than one of each.
It’s a popular way for parents, guardians, family members, or friends to save money on behalf of a child and give them a financial head start. Collectively, you can contribute up to the annual allowance of £9,000. This amount is fixed until 2030.
A Junior Stocks & Shares ISA is an investment account, so the parent or legal guardian has to set it up. Once created they can choose from a wide range of assets, like shares and bonds, to take advantage of global investment opportunities and maximise growth. Investments rise and fall in value, so you could get less than you invest.
Once the child reaches 18, the account matures and rolls into an adult ISA and they can access the money. Please note, Junior ISAs were introduced in the UK in November 2011 to replace the Child Trust Fund (CTF) scheme. It’s not possible to hold both accounts at the same time, but you can transfer a CTF into a JISA.
Open a Junior Stocks & Shares ISA
Junior ISA rates and tax benefits
Although there’s no junior ISA tax relief like that available on pensions, the main benefit is its tax-free status across income and gains. This makes JISAs an effective long‑term tool in broader inheritance tax planning strategies.
Inheritance tax and the role of Junior ISAs
The biggest intergenerational wealth transfer in UK history will lead to more families being caught by inheritance tax. With the nil rate band frozen until 2030 and pensions forming part of your estate, strong planning is essential.
Using Junior ISAs as a vehicle for gifting money can help assets become exempt from inheritance tax over time, especially when using allowances correctly.
Who pays inheritance tax?
The current nil rate band (NRB) for inheritance tax is £325,000. This means if the total value of your estate is less than £325,000 you won’t be liable to pay any inheritance tax. If you pass your home onto your children (including adopted, fostered or stepchildren) or grandchildren, the threshold can increase to £500,000.
If you are married or in a civil partnership, your estate can be passed on to your partner after your death free from inheritance tax. If you have left legacies to someone other than your spouse, this will utilise your NRB. Your spouse will inherit all or any remaining NRB, depending on the provisions of your will. This means that the combined threshold for a couple can be as much as £1m.
How much can you gift each year?
You can give away a total of £3,000 a year, either to one person or several people, without them paying inheritance tax on it. If you don’t use all of your allowance, anything you have left carries over into the next year, but only for one year.
So, if you didn’t utilise your annual gifting allowance last tax year, you could add up to £6,000 to a Junior ISA before the 5th April tax year deadline. This could fall outside of your estate for inheritance tax purposes, making your legacy more tax efficient.
Small gifts of £250 per person each year are allowed on top of this too, providing they aren't to the same people as the gifting allowance.
Larger gifts may become subject to inheritance tax if you die within seven years — this is where taper relief applies.
Regular payments could also reduce your inheritance bill
There is a another, little-known way of passing on your wealth without it affecting any future inheritance tax liability by making “gifts from surplus income”. You can make any number of small gifts without them being considered part of your estate, providing they are:
- Made regularly,
- From surplus income,
- And, mean you do not dip into your savings to maintain your standard of living
One way to take advantage of this rule is to set up regular contributions to a JISA via direct debit. It’s important that you keep records of your gifts, expenses and income for when your estate is valued.
Topping up an existing Charles Stanley Direct Junior Stocks & Shares ISA
Only a parent or legal guardian can open a JISA and be the registered contact on the account. As a family member or friend, you can pay money into the JISA.
If you would like to contribute to a junior ISA held with Charles Stanley Direct, you’ll need to obtain the relevant bank details from the registered contact – this will be the chosen parent or legal guardian.
What if my child has a Child Trust Fund?
You can transfer a Junior ISA to another provider at any time, as well as turning your Cash JISA into a Stocks & Shares JISA. If you or your child has an existing Child Trust Fund, you can track this down and notify your provider of the switch.
It’s important to note you can’t withdraw money from a JISA until your child turns 18. When this happens, their JISA account will change into an adult ISA – either a Cash or Stocks and Shares account, depending on what you had originally.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
Inheritance Tax Calculator
If you’ve got more questions around your potential IHT liability, use our handy calculator for an estimate of how much you could pay.
Inheritance Tax Calculator
