20th October 2020

A Junior ISA as part of Inheritance Tax planning

Inheritance Tax planning is probably not a task that most people will relish but as they say, the only two certainties in life are death and taxes and, thinking ahead and preparing for the inevitable, could really benefit your nearest and dearest. Reducing the value of your estate will significantly reduce their Inheritance Tax liability. 

A Junior ISA could be the ideal way to do this. Junior ISAs are available for any child under the age of 18 and you can contribute up to £9,000 for the financial year 20/21, tax-free. Contributing to a Junior ISA is a way which you can reduce the value of your estate whilst simultaneously giving your grandchild a nest egg which they can access when they turn 18. 

There are numerous ways that a Junior ISA can be utilised with regards to Inheritance Tax. The most simple way is to simply set up a regular, monthly contribution. Regular payments are exempt from Inheritance Tax provided the payments come from your income and not your savings. If regular contributions are not an option due to your personal circumstances, you could consider adding to your grandchild’s Junior ISA as a birthday or Christmas gift. By contributing £250 or less as, or part of, their Christmas or birthday gift, this will both reduce the value of your estate but also the number of unwanted or unused presents. 

Currently, there is a £3,000 annual gift exemption and this could be used to pay into a Junior ISA and none of these gifts would be subject to inheritance tax. Investing in a Junior ISA for your grandchildren could help them fund their tertiary education, buy their first property or help fund the purchase of their first car. In some cases, the cash flow implications of saving for a child’s future solely based on the parent’s contribution can be onerous. Encumbered with expenses like paying a mortgage, transport costs, childcare and other costs associated with raising children, saving for a child could become a ‘nice to have’.  Many grandparents, however, are more likely to be mortgage-free and have the cash to spare that could really make a difference. 

If, as a grandparent, you choose to pay into a Junior ISA, as a gift It’s important to ensure these contributions remain tax-free, the gifts must be regular, so this will require some planning whilst also making sure it remains affordable (it’s worth checking out the latest rules and regulations with a qualified and regulated independent financial adviser). 

With Christmas fast approaching, do your grandchildren really need the latest Lego toy that will remain unbuilt or a doll that will be played with once or twice or would they appreciate regular contributions to a gift that will keep on giving for many years to come? Sure, they won’t get the sugar high of tearing wrapping paper but, in the long term, it will be you they have to thank for their head start. 

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