Rising education costs, high house prices and stagnant wages mean that setting money aside for children can make a meaningful difference to their future. But deciding how to do this involves more than choosing an investment. In this article, Quilter shares some of the ways we can plan for children’s futures.
Each option comes with its own balance of control, access and tax treatment, and these can affect how suitable a structure is for a family’s plans.
Some arrangements give the adult a high degree of oversight but pass control to the child at a set age; others keep the funds locked away for much longer or are shaped by rules such as the parental settlement provisions.
Understanding these trade‑offs helps parents and grandparents choose an approach that supports the child while still fitting with their own intentions.
This article explores the main options and how they handle these themes in practice.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
What are the main options?
Junior ISA (JISA)
A Junior ISA allows money to be set aside for a child in a tax‑efficient way until adulthood.
Up to £9,000 per tax year can be contributed for each child, split between a cash JISA and a stocks and shares JISA, although a child may only hold one of each.
The account must be opened and managed by a person with parental responsibility, known as the registered contact.
While only the registered contact can manage the account, contributions can be made by anyone, including parents, grandparents, and other friends or family members.
The registered contact retains control until the child reaches age 18, when the account automatically converts into an adult ISA and full control passes to the child.
The funds cannot be accessed before age 18, except in the event of the child’s death.
For children born before 2 January 2011, it is also worth checking whether a Child Trust Fund exists, as a child cannot hold both. HMRC provides an online tool to help locate lost Child Trust Funds.
This option provides access to tax efficient savings, but contributions are limited and some clients may be put off by the automatic transfer of control at age 18.
Designated account (bare trust)
A designated account is a simple bare trust, usually offered through a general investment account (GIA). It allows a gift to be made for a child while the adult retains control as trustee.
Income and gains are taxed on the child at their marginal rate. As children have the same income tax and capital gains tax allowances as adults, these accounts can be managed tax‑efficiently.
Though care is required where the gift comes from the parent and the beneficiary is an unmarried minor – in these circumstances income tax is charged on the parent if the trust’s income exceeds £100.
It is a common misconception that bare trusts automatically end at age 18 (16 in Scotland).
Once the beneficiary reaches full age and capacity, they are absolutely entitled to the trust assets and can require the trustees to transfer them. Until that right is exercised, the trust may continue for administrative convenience.
This option can be suitable for larger gifts, as there is no limit on contributions. A common approach is to invest through a designated account and gradually transfer funds into a JISA each year, up to the £9,000 annual allowance.
Investment bond in trust
Investment bonds are unit‑linked life assurance policies. Their structure means the owner has no personal liability to income or capital gains from the underlying funds; instead, tax only arises on a chargeable event, such as a surrender.
Any gain is subject to income tax, and onshore bonds provide a 20% tax credit. Part surrenders of up to 5% of the amount invested can also be taken each year without an immediate tax charge.
Placing a bond in a discretionary trust offers flexibility, particularly where gifts are intended for a wider group, such as grandchildren.
Unlike a bare trust, beneficiaries cannot require the trust to end. When distributing the trust fund, policy segments can be assigned to adult beneficiaries, allowing them to encash at their own marginal rate.
This approach suits larger gifts where control and flexible distribution are priorities, alongside simple annual tax reporting.
However, discretionary trusts may face entry, periodic and exit charges for IHT depending on the size of the gift.
Visit our website for more information
Investing for a child is about more than returns. Differences in tax efficiency, access and control can shape long‑term outcomes, making the choice of structure critical.
Visit Quilter.com to view the full range of products and trusts available.
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