20 November marks UNICEF’s World Children’s Day. It celebrates the Declaration of the Rights of the Child, as well as encouraging us to think about inequality and the basic rights that all children deserve.

As children ‘take over’ roles in media, politics, and entertainment, and national landmarks turn blue to mark the event, you might find yourself thinking about how you can help your own loved ones.

It’s never too early to begin putting money aside to help ensure the financial stability of a child or grandchild.

Read your guide to five products that could help.

1. A Cash Junior ISA

A Cash Junior ISA (JISA) is great for building up a nest egg for when your grandchild turns 18. They might use the fund to help towards further education fees or opt to remain invested.

Only a parent or guardian can open a JISA but once opened, anyone can contribute on the child’s behalf, up to an annual subscription amount. This amount more than doubled in April 2020. For the 2020/21 tax year, you can contribute up to £9,000 or £750 a month.

Contributing to a Cash JISA is easy and any interest is tax-free. But with interest rates low, it’s possible the investment will not keep up with inflation and will effectively lose value in real terms.

A Cash JISA converts to an adult Cash ISA at age 18 at which point your grandchild is free to do with the fund as they wish.

2. A Stocks and Shares JISA

A Stocks and Shares JISA invests in stocks and shares and can lead to higher returns, although the potential reward comes with added risk.

Any gains made on investments are free of both Income Tax and Capital Gains Tax (CGT). Using the full JISA allowance of £9,000 a year from birth could earn your child £228,919 by age 18, according to Hargreaves Lansdown. This is based on a growth rate of 5%, factoring in a 1.25% annual charge, but not inflation.

A child can only hold one of each type of JISA and as with a Cash JISA, control of the account is given to your grandchild when they reach the age of 16. They can start withdrawing funds aged 18.

A JISA could be perfect for helping towards the cost of university, for example, but you’ll have no say in how your grandchild spends their money.

3. Lifetime ISA

If you want to help your grandchild save a deposit for a first house, you might consider a Lifetime ISA (LISA).

Open to those between aged 18 and 39, a LISA enables the holder to save toward a first home while receiving an annual 25% bonus from the government.

The LISA Allowance is £4,000 for the 2020/21 tax year, meaning your grandchild could receive a £1,000 bonus each year. The allowance is subtracted from the adult ISA Allowance of £20,000.

Contributing to your grandchild’s LISA could be a fantastic way to help them onto the property ladder but the money is tied up. It must be used towards a first home or left until your grandchild reaches age 60.

A withdrawal that does not meet either of these criteria will be liable for a 25% charge. This could see your child get back less than was put in.

According to a recent Telegraph report, LISA penalty charges have totalled £800,000 in the three years since they were introduced, making clear that the product shouldn’t be treated as a short-term savings account.

4. Pension

It’s never too early to start saving into a pension and even modest contributions could result in a considerable retirement fund over a long investment period.

You will receive tax relief on any contributions you make up to a limit of £2,880 a year. Contribute that amount and £3,600 will be invested.

Ownership of the pension automatically transfers to your grandchild once they turn 18 but they will not be able to access the funds until they reach age 57 or older.

Money tied in for decades means your grandchild cannot use it towards higher education costs or a first home, but it could lead to a considerable pot in retirement.

5. Gifting a living inheritance

You can gift money to your grandchild whenever you like, regardless of the value. But it’s important to weigh up the timing of any such gift, and the tax consequences.

For a gift to be tax-free, you’ll need to live for more than seven years after making the gift, otherwise, there will likely be IHT to pay. Your beneficiary may also have CGT to pay on any income made from the gift.

You can make use of the £3,000 annual exemption to give tax-free gifts in your lifetime. You can also gift £250 per individual per year to cover Christmas and birthday presents. Wedding gifts for grandchildren are also exempt, as long as they are made before the wedding and do not exceed £2,500.

Rules around estate planning and gifting can be complex, so speak to us if you’re unsure.

Get in touch

The earlier you start saving for your grandchild the better. Putting money aside for education, house deposits, and even retirement gives the money chance to grow, and choosing the right product means the money will be available when your grandchild needs it most.

Please contact us if you’d like to discuss building a nest egg for your grandchild and we can help find the right product for you.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.