While parents or guardians must open a Junior ISA (JISA), the money belongs to the child. Your grandchild can access the money when they turn 18.
A Stocks and Shares JISA is a useful long-term investment vehicle. Any money put into a JISA is free of tax and you can invest up to £9,000 (2021/22) each year.
Saving just £500 a year into a Stocks and Shares JISA can really add up. If you put £500 into a JISA a few months after your grandchild is born, and again before every birthday, by the time your grandchild reaches their 18th birthday the investment could be worth almost £14,350 (assuming 5% investment growth each year, less 1% annual charges).
Investing in a JISA guarantees the money definitely goes to your grandchild, since it’s only the child who may access the money when they turn 18. If they don’t want to take the money out of the ISA at this stage, the account will transfer to an adult ISA, allowing them to keep the funds invested.
There are various JISA products available. With a wide range of investment sectors to choose from, it’s wise to talk to a financial planner to make sure you’re making a sound decision on behalf of your grandchild. Get in touch if you’d like to discuss the options.
An alternative to a JISA is to save into a pension. This may seem absurd when your grandchild is possibly still in nappies, but it’s an interesting proposition.
A parent or guardian can open a pension for a child. Once set up, any family member can invest.
Free from Income Tax and Capital Gains Tax, you can invest £2,880 tax-efficiently each year. The government automatically tops up contributions by 20%, so an annual payment of £2,880 automatically becomes £3,600.
As an example, if you invested the maximum of £8,640 (£10,800 including the government contribution) over just three years, the pension could be worth £350,943 in 50 years’ time, with 25% available as a tax-free lump sum when they reach pension age, under current legislation. (Example assumes an average growth rate of 2.5%, with no early withdrawals.)
Any growth is free of tax which helps it to increase in value. Like any investment, its value can go down as well as up.
If you want to invest for your grandchildren and you’re not sure what’s the best option, or what type of fund you should use, we can help.
Please email us at firstname.lastname@example.org or give us a call on 0330 1180210 to discuss your wishes and how we can help you give a financial gift to your grandchildren.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
Levels and bases of, and relief from, taxation are subject to change.