There are two great options for clients looking to invest for their children: pensions for long-term growth and Junior ISAs for shorter to medium-term investments. Both offer distinct benefits depending on your goals.
Children can also benefit from pension investments, even though they rarely have earnings. For the 2024/25 tax year, the maximum contribution is £2,880, which, with the 20% tax relief, totals £3,600.
Only a parent or guardian can set up a pension for a child, but once it’s established, anyone can contribute — parents, grandparents, godparents, friends, and other family members. Be sure to set up the pension in time to make contributions before the end of the tax year to make the most of the available allowance.
A Junior ISA (either cash or stocks and shares) is another excellent way for parents or guardians to save for their child’s future. The annual contribution limit for a Junior ISA is £9,000 per child. Once the ISA is set up, anyone can contribute, allowing family members and friends to help build the child’s savings.
Keep in mind, the £9,000 allowance cannot be carried forward, so it’s important to use it within the tax year.
Contributing to either a child’s pension or Junior ISA can help reduce your potential inheritance tax (IHT) liability by lowering the overall size of your estate. Depending on the circumstances, these contributions may also fall within the annual £3,000 tax-free gifting allowance or qualify for regular payment exemptions, further enhancing their tax efficiency.
For help and guidance, talk to The Wealth Coach