Junior ISAs are one of the most tax-efficient ways to save for a child’s future, and with the new financial year ahead of us, there’s never been a better time to start building up a nest egg. While parents will need to open a Junior ISA, grandparents play a crucial role in helping maximise those savings. Contributing to a Junior ISA can give grandchildren a valuable head start in life — from funding university costs to helping with a first home deposit.

In this guide, we’ll explain how the new Junior ISA allowance works, how grandparents can contribute tax-efficiently, and why starting early makes a big difference.

What’s the 2025/26 Junior ISA Allowance?

From April 6th 2025, the annual Junior ISA allowance will remain at £9,000. This means that up to £9,000 can be saved or invested tax-free each year in a Junior ISA. The allowance resets at the start of each tax year, and any unused allowance doesn’t roll over — so to make the most of it, contributions need to be made before April 5th 2026.

Parents and legal guardians are the only ones who can open a Junior ISA, but once it’s set up, anyone can contribute — including grandparents. This makes Junior ISAs an ideal way for grandparents to pass on wealth without worrying about tax implications.

How Grandparents Can Contribute to a Junior ISA

Grandparents can contribute to a Junior ISA in two key ways:

1. Direct Contributions – Grandparents can make a lump sum payment or set up a regular standing order to the Junior ISA.

2. Gifting Within Inheritance Tax Limits – Each grandparent can gift up to £3,000 per tax year without it being counted as part of their estate for inheritance tax purposes. This is separate from the Junior ISA allowance, so it’s possible to gift money to the Junior ISA without affecting other financial gifts.

If you haven’t used your full inheritance tax gift allowance from previous years, you can carry forward the unused amount for one year — meaning grandparents could contribute up to £6,000 in a single tax year if they didn’t gift anything the previous year.

Why Junior Investment ISAs Are a Smart Choice

Junior ISAs come in two forms: cash and stocks & shares (investment). While cash ISAs offer stability, the potential returns on an investment ISA are significantly higher over the long term, but like any investment, also comes with an inherent risk. 

For example, if a grandparent contributes £100 per month to a Junior Investment ISA from birth (with a historical average return of 5% per year) the fund could grow to around £34,000 by the time the child turns 18. In contrast, the same amount in a cash ISA with a 2% interest rate would only grow to around £24,000.

The earlier contributions are made, the more time the investment has to grow due to compound interest — where the returns themselves start generating further returns.

The Power of Compound Growth Over Time

To see the real impact of compound growth, let’s take two examples (based on historical returns):

• A grandparent contributes £100 a month to a Junior Investment ISA when the child is born. If the investment grows at an average of 5% annually, those contributions would be worth £34,920 by the time the child turns 18

• If the grandparent contributed £3,000 (or £250 per month) every year for 18 years, the total fund would be worth £87,300 (assuming a 5% annual return).

That’s the power of starting early and letting compound growth work its magic.

How to Open a Junior ISA for Your Grandchild

While grandparents can’t open a Junior ISA directly, they can encourage parents to set one up. Once it’s open, grandparents can transfer funds directly to the ISA or arrange regular payments.

If the Junior ISA is an investment ISA, grandparents might want to discuss the risk level with the parents — younger children have a longer time horizon, so higher-risk investments may be more suitable to maximise long-term returns.

FAQs for Grandparents

Can grandparents open a Junior ISA?

No — only parents and legal guardians can open a Junior ISA. However, grandparents can contribute once it’s open.

Do Junior ISA contributions from grandparents count towards inheritance tax?

Contributions up to £3,000 per grandparent per tax year are exempt from inheritance tax.

What happens when the child turns 18?

The Junior ISA automatically converts into a standard ISA when the child turns 18, and they’ll have full access to the funds.

Final Thoughts

Junior ISAs offer an excellent opportunity for grandparents to pass on wealth and give their grandchildren a strong financial foundation. By contributing early and making the most of the 2025/26 allowance, grandparents can take advantage of tax-free growth and compound returns, setting up a valuable gift that will benefit their grandchildren for years to come. This article is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor for personalised guidance.