Overview
- Long-term options such as Junior ISAs, pensions, and trusts come with strict access rules.
- Cash savings accounts may be better suited for shorter-term needs.
- Making use of a child’s tax allowances can be highly efficient, but it’s important to balance this with wider estate planning objectives.
Why Financial Planning for Children Matters More Than Ever
Many parents and grandparents are increasingly concerned about the financial outlook facing younger generations. Challenges such as a weaker job market, rising property prices and insufficient retirement savings are making it harder for young people to establish financial security.
Fortunately, there are a range of savings and investment options available to help build a strong financial foundation for children and grandchildren. Choosing the right approach can make a meaningful difference over time.
The Power of Time and Tax Allowances
One of the biggest advantages young people have is time. A longer investment horizon allows savings to benefit from compounding, where growth generates further growth over time.
Children in the UK also have their own tax allowances. For the 2026/27 tax year:
- Personal allowance: £12,570 (income tax-free)
- Capital gains tax allowance: £3,000
- Personal savings allowance: up to £1,000
- Starting rate for savings: up to £5,000 (gradually reduced as income rises above £12,570)
However, special rules apply if income comes from money gifted by parents, which can affect how it is taxed.
Used effectively, these allowances combined with long-term investing can significantly boost a child’s financial future. It is important to note that tax rules and reliefs depend on individual circumstances and may change over time. As a result of this, tax outcomes will differ between investors and so should be considered alongside your wider financial position.
Junior ISAs (JISAs): Tax-Efficient Long-Term Savings
A Junior ISA is one of the most tax-efficient ways to save for a child. Like adult ISAs, any interest, income, or growth is free from income tax and capital gains tax.
Key points:
- Annual allowance: £9,000 (2026/27)
- Available as cash, stocks & shares, or a combination
- Opened by a parent or guardian, but anyone can contribute
- Funds are locked until age 18
While JISAs are excellent for long-term goals such as university or a first home, families should be comfortable with the fact that the child gains full control at 18.
Children’s Pensions: Investing for the Very Long Term
For those thinking even further ahead, a pension can be a powerful option.
Key features:
- Contributions up to £2,880 per year
- Government adds 20% tax relief, increasing it to £3,600
- Access typically from age 55 (rising to 57 from 2028)
Although the timeframe is long, that’s also what makes pensions so effective, decades of potential compound growth. However, because funds are inaccessible for many years, pensions are not suitable for shorter-term goals like education or property deposits.
As with JISA, a child’s pension can only be set up by a parent or legal guardian however once set up anyone can contribute.
Investing via Trusts: Flexibility and Control
Trusts can offer a flexible way to pass on wealth, especially for grandparents.
Bare Trusts
- No contribution limit
- Income and gains are taxed as the child’s
- Child gains access at age 18 (England and Wales)
- Potential tax implications if funded by parents and income exceeds £100 annually
Discretionary Trusts
- Trustees control how and when funds are distributed
- Offers protection and flexibility for changing family circumstances
- Can support multiple beneficiaries, including future generations
- May be useful for vulnerable or disabled beneficiaries, as assets are not usually included in means-tested benefit assessments
However, trusts can be complex and require careful planning, so professional advice is essential.
Children’s Savings Accounts: Simple and Accessible
For shorter-term needs, a children’s savings account can be a practical solution. These accounts provide easy access and can help teach financial responsibility from an early age.
Benefits include:
- Competitive interest rates (often higher than adult accounts)
- Use of personal savings and starting rate allowances
- Encourages good saving habits
As with other options, parents should be aware of the £100 income rule on parental gifts, which may create a tax liability.
Investing in equities and shares does not provide the same capital security as a deposit account with a bank or building society, and the value of investments can rise and fall, meaning you could get back less than you invest. However, while cash savings may be suitable for short-term goals, they may not keep pace with inflation and can see their purchasing power eroded over time; by contrast, investing, although subject to risk and without guarantees, offers greater potential for long-term growth, particularly when held over an extended period.
It’s also important to note that tax rules and reliefs depend on individual circumstances and may change over time. As a result of this, tax outcomes will differ between investors and so should be considered alongside your wider financial position.
Building Financial Confidence for the Next Generation
There is no single solution when it comes to saving and investing for children. The best strategy will depend on individual family goals, timelines, and circumstances.
Beyond financial contributions, education plays a vital role. Helping children understand saving, investing, and responsible spending can build lifelong confidence and good habits.
Starting early, both financially and educationally, can provide future generations with a stronger, more secure financial footing in an increasingly challenging world. If you’d like guidance on choosing the right opportunity for your family, speak to us today to start building a plan.
Please note, SJP does not offer a Cash JISA or savings accounts.
Trusts are not regulated by the Financial Conduct Authority.
SJP Approved 16/06/2026