This information was correct in January 2025, but tax rules and allowances can change.
Looking for the best ways to save for your grandchildren? There are a mix of options to choose from. Whether it’s a Junior ISA, simple savings account, or investing on their behalf. But you might be wondering, can a grandparent open a Junior ISA? And does inheritance tax affect your gifts?
This guide has you covered. We’ll explore the pros and cons of each savings option, help you choose the right one, and explain all the tax implications in way that’s easy to understand.
Why should grandparents save for grandchildren?
Saving for your grandchild’s future can open a world of opportunities. It can give them a head start to buy their first home, pay towards university, or have some extra cash for a dream holiday or wedding.
But it’s not just about the big milestones. Saving for your grandchildren also teaches them valuable lessons about money management and can help them develop good financial habits.
What about inheritance tax?
It’s wise to consider inheritance tax if you gift money to your grandchildren. Luckily, there are ways to give without a big tax bill.
- Use your Annual Gift Allowance: You can give away up to £3,000 each tax year without it counting towards inheritance tax on your estate. This is known as your annual exemption. You can give the whole amount to one person or split it between several people.
- Carry it forward: Didn’t use all your allowance? You can carry forward any unused allowance to the next tax year, giving you a potential £6,000 limit. But you can only carry it forward one year, so use it or lose it.
- Make regular payments: You can regularly give money to someone, like a family member, if you can afford it after supporting yourself. You could help with the child’s living costs or put money into a savings account for them. There’s no limit on how much you can give tax-free this way. Plus, you can combine this with other gifting allowances to give more to the same person. For example, you could give your child £60 a month and still give them a separate gift within the tax year’s limits.
- Other exempt gifts: You can also make some gifts outside of your £3,000 allowance. These include small gifts up to £250 per person. So, you could give each of your grandchildren a £250 birthday present every year. It also includes wedding gifts, but the tax-free amount depends on your relationship to the couple. For grandchildren, it’s £2,500. You can also pay money towards your grandchild’s living costs, like rent or university tuition fees.
Imagine your grandchild is getting married next year. You could give them a £2,500 wedding gift and still have your full £3,000 annual allowance to use for other gifts.
Gifts that go over your allowance in any tax year might face inheritance tax, so it’s important to plan carefully. Read more detailed information on planning for your grandchildren’s future.
Can grandparents open a Junior ISA?
Now that you understand the benefits of saving for your grandchildren, you might be ready to consider a Junior ISA. They’re a popular choice, but can you open one for your grandchild?
Unfortunately, the answer is usually no. Only a parent or legal guardian can open a Junior ISA. But don’t worry, you can still help as once the account is open, anyone can contribute to it.
Why are Junior ISAs a good way to save?
- The money grows free from income tax and capital gains tax, meaning more money for your grandchild.
- The money is locked away until your grandchild turns 18, so they use it for their future.
- You can choose a Cash Junior ISA for simple savings or a Stocks & Shares Junior ISA for potential investment growth.
Want to learn more about Junior ISAs?
Check out the Junior ISA page for all the details.
Even though you can’t open the account, you can still play a big part in your grandchild’s savings journey. Keep reading to discover other ways you can help them financially.
Can grandparents pay into a Junior ISA for grandchildren?
Even though you can’t open a Junior ISA yourself, you can still contribute to one that’s been set up for your grandchild. It’s a great way to help them save for the future.
How much can you contribute?
The Junior ISA allowance is £9,000 for the 2024/25 tax year. This is the total that can be paid in by all contributors, so it’s worth checking with other family members to make sure you don’t go over the limit. You can find the latest Junior ISA allowance on our website.
How do you pay into a Junior ISA?
It’s easy. Ask your grandchild’s parent or guardian for the account number and your grandchild’s date of birth to get started. From then, there are a few different ways you can contribute to a Junior ISA, depending on the provider:
- Use a bank transfer to make one-off or regular payments.
- You can set up regular payments to go out automatically using standing order or a direct debit.
- Direct debit allows the account holder to collect different payment amounts. This is useful if the payment changes each time.
- Some providers might still accept cheques but check first.
If you choose a Shepherds Friendly Junior ISA, contributions from £10 a month can be made by Direct Debit or lump sum. To pay in to an account, call the Shepherds Friendly member services team at 0800 526 249 or make an online payment.
Contributing to a Junior ISA is a helpful way to support your grandchildren and their future. Even small amounts can make a big difference over time.
For more information on Junior ISAs, visit the official GOV.UK website.
Is it better to save for grandchildren or gift them money?
The decision to save for your grandchildren or give them money straight away depends on what you want to achieve. Here’s a comparison table to help you decide.
| Savings option | What it does | Pros | Cons | Who gets the money | Tax rules |
|---|---|---|---|---|---|
| Junior ISA (JISA) | Tax-efficient saving or investment account for children. | Tax-free growth. Money locked away until 18 to help long-term savings. | Grandparents cannot open the account (unless a legal guardian). | Child at 18. | No tax on interest or growth. Potentially forms part of the child’s estate. |
| Gifting money | Give money directly to the child or their parent. | Child can use the money immediately. Can help reduce inheritance tax liability. | May be spent rather than saved or invested. | Child or parent. | May be subject to inheritance tax if above annual allowance. |
| Grandparent’s ISA | Invest in your own ISA and gifting it later. | Grandparent has control and access to the money. Tax-efficient growth. | Once gifted, the money loses its tax-efficient status. If it’s in a JISA, it can be transferred into an adult ISA to keep tax-free benefits. | Grandparent. | Tax-free growth in the ISA. May be subject to inheritance tax upon gifting or death. |
| Child Trust Fund (CTF) | Government scheme for children born between September 2002 and January 2011. | May already have funds accumulated. | No new accounts allowed. Limited investment choices. | Child at 18. | Identical to the JISA. |
| Premium bonds | Lottery-style savings with chance to win tax-free prizes. | Potential for higher returns than cash savings. | No guaranteed return. | Grandparent, but can be held in child’s name. | Prizes are tax-free. |
How Inheritance Tax affects gifts
Gifting money might count as part of your estate for Inheritance Tax if you give away too much and die within 7 years. However, you can give away £3,000 each year with no tax issues, plus any leftover allowance from last year.
Saving money in a Junior ISA (JISA) usually means it won’t be counted as part of your estate for Inheritance Tax, if you stick within the limits.
It’s worth remembering that if you leave gifts to grandchildren in your will, they’ll usually be counted as part of your estate. This means they might be subject to Inheritance Tax, which is currently 40% on anything above £325,000.
When can your grandchild use the money?
With gifting, they can use the money straight away for anything they like. But, with a Junior ISA, the money is locked away until they turn 18. This means it’s there for their future, but they can’t use it for everyday things.
How to reduce taxes when you save for grandchildren
Gifting can help reduce Inheritance Tax due on your estate when you die. On the other hand, Junior ISAs are tax-efficient, meaning the money grows without being taxed, so your grandchild gets more in the long run.
Best ways to save for grandchildren
Want to give your grandchildren financial support right now? Here are ways to gift money to your grandchild:
- Give money directly to your grandchild for them to spend now or save for the future.
- Open a savings account in your grandchild’s name and contribute regularly to help them build a nest egg.
If you prefer to save for them, then:
- Open a Junior ISA and contribute up to the annual allowance each year. It’s tax-efficient and you can control how the money is used.
How to decide between saving and gifting
If you want to help your grandchild now, gifting might be best. You could buy the new games console they’re after or give them some extra spending money.
If you want to build up savings for their future, a JISA is a good choice.
Need more help?
It’s always a good idea to chat with an independent financial advisor. They can help you understand the tax rules and make the best choice for your family.
Important: We try our best to keep this information up to date, but tax rules and allowances can change.
Teaching your grandchildren about money
It’s never too early to start teaching your grandchildren about money. Here are a few ideas:
- Open a children’s savings account for them and encourage them to save regularly. Banks and building societies offer accounts with fun features and educational resources.
- Explain basic financial concepts like budgeting, saving, and safe spending. Use everyday examples, like going to the supermarket or saving for a toy.
- Give them pocket money to make spending decisions. This helps them learn about managing money.
- Talk to them about different careers and how earning money works. This can start an interest in planning for their future.
What are the best saving products to save for grandchildren?
You want to save for your grandchild’s future, but with so many options, it can be tricky to start. Here’s a rundown of some popular choices:
A tax-efficient Junior ISA (JISA)
A Junior ISA is a great way to save or invest for your grandchild. The money grows free from income tax, and they can only access it when they turn 18.
There are two main types:
- A Cash Junior ISA is like a regular savings account, offering a fixed interest rate.
- A Stocks & Shares Junior ISA invests your grandchild’s money in the stock market. There is a potential for higher returns over the long term, but also risk.
You can’t open a Junior ISA unless you’re the child’s legal guardian, but you can contribute to an existing one.
More ways to save for your grandchild’s future
- Another option is to invest in your own Stocks & Shares ISA. This gives you complete control over the investments and lets you access the money if you need it. You can gift it to your grandchild when they reach adulthood or need it for something, like a house deposit. However, gifting will be subject to regular tax rules, such as inheritance tax.
- If your grandchild was born between September 2002 and January 2011, they might have a Child Trust Fund. You can still contribute to these. Once they turn 18, they can withdraw the money, transfer it to an ISA, or leave it in the account (though no further contributions can be made).
- Premium Bonds give you the chance to win tax-free prizes instead of earning interest.
Choosing the right option depends on your finances and risk you’re comfortable with. It’s always a good idea to talk to a financial advisor for personalised advice.
In summary
This guide explored different ways to save for your grandchildren, including Junior ISAs, gifting, and other options. Here’s a quick recap to help you decide on your next steps:
- Junior ISAs are a tax-efficient way to save, but only parents can open them. However, grandparents can contribute to an existing JISA account.
- Gifting has inheritance tax implications, but you can give £3,000 tax-free each year.
- Other options include Child Trust Funds, Premium Bonds, and saving in your own ISA.
Junior ISAs are a great way to save tax-efficiently, but a parents or guardian needs to open an account first for you to contribute.
Want more help deciding? Check out other helpful articles on the Shepherds Friendly blog.
