Want to give a child a real head start in life? Start investing for them early. Putting money aside when your child is young means it will be left untouched for a long time – perfect for investing. It allows small, consistent contributions to grow into something meaningful.
And it’s not just for parents to think about either. Friends and family can all play a part in building a nest egg that could one day help fund life’s major milestones. Whether it’s education, a first home, or laying the groundwork for retirement.
Now, there are a few ways to do this – a Junior ISA, Junior SIPP or Bare Trust Account – or even a mix of all three. And when the child turns 18 (16 for the Bare Trust in Scotland) they can normally take control of the money. These accounts can be more than just a nest egg – they’re a way to start teaching your children about money and the world of investing.
You can start as soon as you think they’re ready – every child is different but making it relatable is key. Talk about companies they recognise, their favourite brand of chocolate, a gaming company they use, or a car manufacturer they admire.
And when they hit their teenage years? That’s when the lessons really matter. Equipping older children with financial know-how is one of the best forms of risk management, as it can help them avoid the latest TikTok meme stock or crypto craze, and crucially, show them how to spot a scam.
That’s why we’re looking at the three accounts you can consider.
This article isn’t personal advice. Investments can rise and fall in value, so you could get back less than you invest. Pension, ISA and tax rules can change, and benefits depend on your circumstances. If you’re not sure if an action is right for you, ask for financial advice.
Junior ISA – tax-free haven accessible from 18
Junior ISAs offer a valuable tax-free wrapper to families who want to save for their offspring. Once opened by a parent or legal guardian, anyone can contribute regularly, or as one-off gifts for birthdays and holidays.
You can invest up to £9,000 every tax year and all interest and investment growth is free of UK income and capital gains tax. Money in a Junior ISA is normally locked away until the child reaches 18, so there’s plenty of time to ride the ups and downs of the stock market.
If you start when they’re young, the compound growth each year can turn into a significant sum. Our calculations show that investing the full £9,000 Junior ISA allowance each year from birth could produce a nest egg of around £260,000 by the time they turn 18, based on annual investment growth of 5% (excluding investment charges and inflation).
And it’s even better with HL because kids go free with our Junior ISA.
Junior SIPP – the long-game with a 20% tax relief boost from the government
A Junior SIPP lets you start a retirement fund for a child.
It might seem absurd to be thinking about retirement for someone who’s still wearing nappies, but the maths is pretty compelling. All thanks to tax relief coupled with tax-free investment growth, and the added magic of compounding.
You can normally save up to £2,880 a year into a Junior SIPP, which is topped up to a maximum of £3,600 by the government in the form of basic rate tax relief of 20%.
If you contributed the maximum each year from birth to age 18, the pot could be worth close to £100,000, assuming 5% investment growth a year. Left untouched, it could be close to a whopping £1,000,000 by the time your child turns 65. These calculations do not consider investment charges or inflation.
These figures are for illustration only and aren’t guaranteed. Actual returns may be higher or lower and depend on investment performance. They do not consider inflation or charges, which would reduce returns.
Junior SIPPs must be opened and managed by a parent or guardian. Then, when they turn 18, control passes to the child, though they won’t normally be able to access the money until pension age (55 currently but rising to 57 in 2028).
Just like an ISA, other family members can contribute and for grandparents it could even be a handy estate planning tool. If they choose to use part of their £3,000 annual gifting allowance then the contribution will usually be immediately exempt from inheritance tax.
Bare Trust Account – unlimited contributions and effective estate planning
Bare Trust Accounts can be attractive for grandparents, who would like to be able to set up the account and control the investment decisions. With no limits on contributions, you can pay in as much as you like and any tax usually falls upon the child, so there’s often little or no tax to pay. But there’s an exception to this rule – if income generated from gifts from a parent exceeds £100 a year, any income is then taxed as the parent’s income and not the child’s.
The child is automatically entitled to what’s in the Bare Trust at 18 – however, access before 18 is possible, provided the trustees demonstrate that the withdrawal is for the benefit of the child e.g. buying their first car, or school fees.
Bare Trust Accounts can also support inheritance tax planning. By putting the money in trust, it can reduce the value of an estate, and in turn any inheritance tax bill that may be due in the future.