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Tax efficient saving for children and grandchildren with JISAs and SIPPs

Tax efficient saving for children and grandchildren with JISAs and SIPPs post image

I am at that age where children start magically appearing in my friends’ and families’ lives.

And while I wait in vain for anyone to ask for football tips or fashion advice for the next generation, their parents – and grandparents – often ask me how they can provide financial help for their youngest loved ones.

It’s great to start saving and investing for a child as soon as possible. In fact as a sad cool accountant, I feel it’s the best gift you can give them! (Barring a copy of My First Guide To Double-Entry Bookkeeping – the illustrated edition, naturally).

Of course all the standard personal finance advice still applies – and make sure you can afford any support you give others.

Much of this will come down to personal circumstances, but something everyone needs to think about is which investment platform you choose. (More on that in a bit!)

Two platforms and three factors

There are two types of easy-to-set-up tax efficient vehicles aimed at kids:

  • Junior ISAs (JISAs)
  • Self-invested Personal Pension (SIPPs).

To decide which option is best, we can boil the choice down to three factors: control, efficiency, and access.

  • Control – How much control you can exercise over the money that you give once it’s left your wallet? (On a sliding scale from “It’s theirs now, let’s pray they don’t go to Ibiza” to “Well, technically it’s your money little Jonathan / Gemima, but…”).
  • Efficiency – How much bang for your buck do you can get from gifting money? (Spoiler alert: It can be a lot).
  • Access – How and when is the money accessible?

The best choice for you will depend on how you feel towards each of these factors.

JISA

The 2018/19 limit for a JISA is £4,260. As with a standard ISA, no tax is payable on any interest or gains made within the JISA wrapper.

The JISA option is open to anyone under 18, who is resident in UK and who doesn’t have a Child Trust Fund (CTF).1

Just like regular ISAs there are two types of JISA: Cash and Stocks & Shares. We’ll focus on the Stocks & Shares flavour. (After all this is an investing website – at least when The Investor isn’t raging about Brexit!)

How to JISA

A parent or guardian opens and manages the JISA account. It must be a parent or guardian – it can’t be a grandparent, for example.

What you will require to open the account varies. But you will at least need to ID the parent (also called the Registered Contact). You may also have to provide the parent’s birth certificate or National Insurance or passport number. The process is straightforward and takes about five minutes.

Note that while a parent opens and manages the account, money in a JISA is – legally speaking – the child’s money. The child ‘takes back control’ (!) aged 16. And they can start to withdraw money from age 18, at which point the JISA converts into a regular ISA.

Those aged 16 and 17 can also contribute into an adult a Cash ISA (but not an adult stocks and shares ISA, where you need to be 18). They can contribute up to the £20,000 (2018/19). This is in addition to any money paid into their JISA.

It’s easy to put money into a JISA. You typically go to the provider’s website and enter the relevant account and payment details.

Anybody can put money in like this – you don’t need the account holder to do it for you (though it might be best to let them know!)

However only the parent / registered contact can change the account (from say a Cash ISA to a Stocks and Shares ISA) or switch provider or edit account details.

Most providers offer you the option to fund the JISA with lump sums. Some providers such as AJ Bell Youinvest have no minimum lump sum.

You can also make regular contributions. From my research, The Share Centre has the lowest minimum monthly contribution rate at £10 per month.

Factors to consider when choosing a Junior ISA:

Think about:

  • Control – Once the money is in the JISA account, it’s the child’s. The parent manages it (not anyone else) but at age 18 the child can blow it all on craft beers and glamping (*shudder*).
  • Efficiency – The ISA wrapper means there’s no tax on income or capital gains. Up to 18 years of compounded and globally diversified investing should lead to some nice juicy gains (assuming Kanye West doesn’t make it to the Oval Office). Particularly for grandparents, JISAs are an effective way to pass down money and avoid inheritance tax. Monthly contributions made out of income are exempt from inheritance tax.
  • Access – The money is locked in until the child is aged 18, and accessible thereafter. This makes a JISA suitable for saving for a house deposit, first car, university costs, or a wedding.

In choosing a JISA provider think about:

  • Cash or shares? With a Stocks & Shares ISA there is the potential for greater returns, at the risk of capital loss. (But with a planning horizon of as long as 18 years, time is on your side in the stock market.)
  • These can vary significantly between providers. Most providers JISAs have the same charges as their regular ISAs. See the Monevator comparison table.
  • Consider whether transfers in are allowed, and if there are charges from transfers out.2
  • Range of investments. Some providers only offer a limited range of investible funds or investments. Identify your investment goals and then find a provider to meet those aims.

Junior SIPP

The alternative to a JISA is a Junior SIPP.

You can contribute money into a child’s pension from any age. It’s never too soon to get that Warren Buffett snowball rolling…

(You can contribute into anyone’s SIPP, incidentally – whether they’re an adult or a child. Though it’d be a bit weird to contribute to a stranger’s pension!)

Assuming your child is a non-earner – those work-shy toddlers – the maximum you can contribute into their Junior SIPP is £3,600 gross per year (that is including tax relief).

Remember that the contributor cannot claim tax-relief. Only the recipient can.

The mechanics are otherwise very similar to a JISA. Again, the parent will manage the account for children under the age of 16. Family and friends can add money to a Junior SIPP in much the same way as a JISA.

Also like JISAs, investments in SIPPs are free from income and capital gain taxes. (That is, until the money comes to be withdrawn. Income taken from a pension may be taxable, depending on personal circumstances.)

Contributions into a SIPP are usually free from inheritance tax, providing they are contributions out of income that leave the transferor with enough income to maintain their usual standard of living. In addition, everyone has a £3,000 per year annual exemption. That is, you can gift £3,000 a year and it’s free of inheritance tax. As mentioned above, the maximum you can contribute per year into a non-earners’ SIPP is £3,600 gross (after including tax relief).

Again, both lump sums and regular savings can be used to fund the account.

On the downside, SIPP money is only accessible from age 55. This threshold is set to rise to 57 in 2028. It might go up further in the future.

Decision factors when taking the SIPP route

When choosing a Junior SIPP think about:

  • Control – It’s the child’s money, but unlike with a JISA they can’t access it until they’re much older. Hopefully the child will have ‘matured’ by their 50s. (Though maybe that means less chance of strippers but more chance of Lambos?)
  • Efficiency – As with a JISA, a SIPP is income tax and capital gains tax efficient. Contributing into somebody else’s pension is particularly helpful if you’re at risk of breaching the Pension Lifetime Allowance. It can also result in one of the highest ‘tax savings’ that I’m aware of – if the child is a 40% taxpayer then the family can net a 90% tax saving. (See the bonus appendix below for the maths.)
  • Access – The big downside. Money in a SIPP isn’t accessible until your 50s. That may represent a very long wait. This makes a Junior SIPP a suitable option for retirement wealth building, but not for living costs or big events.
  • Your Pension Lifetime Allowance. One reason you might choose to go for a Junior SIPP instead of a JISA is if you are getting close to the Lifetime Allowance. This might make diverting your pension contributions to somebody else more tax efficient for you, if it’s an option.3

Choosing a SIPP provider is very similar to choosing a JISA, except that in addition to the usual broker platforms there are also personal pension providers that offer low-cost, low-contribution options, at the expense of a narrower investment selection.

Why not have both?

If you can afford it – and you love the children that much – you could go for both a JISA and a SIPP and contribute to each to maximise the respective benefits.

Either way, any money given to children that has a chance to compound for at least 18 years – and multiples of that in a SIPP – should be very gratefully received.

But as we cautioned at the start, make sure your planning takes into account your own retirement provisions and other financial commitments, too.

Read all The Detail Man’s previous posts on Monevator.

Bonus appendix: Worked example of (crazy high) 90% tax relief

Parent puts £3,000 into child’s SIPP (using £3,000 annual IHT exemption)

Saving 40% x £3,000 = £1,200 in IHT relief

The child receives £3,000 plus £750 relief at source

Calculated as £3,000 x 25% = £750 tax relief

If the child is a 40% tax rate payer, they can claim a further 20% through self-assessment:

£3,000 x 25% = £750 tax relief

That gives total tax relief of: £2,700 (£1,200 + £750 + £750) on a gift of £3,000. Equivalent to 90% tax relief!

  1. CTFs were killed off back in January 2011. Since April 2015 you can transfer a CTF to a JISA. []
  2. The FCA is currently looking at abolishing transfer out charges and several providers are supporting this initiative. []
  3. Some employers will allow you to do this, though it is far from common. []

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{ 36 comments… add one }
  • 1 The Rhino March 14, 2019, 12:20 pm

    I’ve got two JISAs with youinvest, and managed to successfully transfer a CTF to a JISA a while back. The SIPP option is just too long-term for my reptile-brain to deal with so I haven’t bothered. Plus I have a feeling that’s prob not when your offspring are going to be in most dire need of a cash injection, i.e. if by pension age they haven’t managed to sort themselves out financially then they’re doomed anyway? Also, from a selfish perspective, as a parent it would nice to still be alive to observe the (hopefully positive) effect of any gift you make, i.e. see it get spent.

    I’m struggling a bit with the bonus example.

    Parent puts £3,000 into child’s SIPP (using £3,000 annual IHT exemption)

    Saving 40% x £3,000 = £1,200 in IHT relief

    you couldn’t just explain that bit in more detail by any chance? Is it that the parent is gifting 3k but eventually that gift is worth more to the child? I’m a little slow on the uptake here…

    Also, am I right in thinking its unlikely a child will be in the HRT band, but maybe the example is supposed to be an ‘extreme’ case?

  • 2 Phil March 14, 2019, 12:29 pm

    I’ve also grappled with this. How can you get the tax free elements of jisa but stipulate age they can access!?

    Is the answer you can’t? Is a trust the answer but this doesn’t have the tax advantage? Plus multiple different types of trust!

  • 3 Mark March 14, 2019, 1:18 pm

    Would be quite interested on a post about the different types of CTF you could do and how they compare to a JISA.

    Thanks,

  • 4 Arabella Tullo March 14, 2019, 2:10 pm

    Hi, I pay into my own SIPP and two (adult) sons at the net amount of £2880 which is then grossed up by tax relief of £720 to £3600. I understood this is the maximum figure you may pay in if you are either not working (me) or contributing towards someone else’s pension. Would your example be less confusing with these figures rather than £3K you propose?

  • 5 RS March 14, 2019, 2:14 pm

    Can I assume this only works if the child is tax resident in the UK?

  • 6 Alex March 14, 2019, 2:20 pm

    Great article. Oddly enough I was looking at this subject this morning, and came across the Money Saving Expert article, which is woefully deficient. Under benefits of a JISA they don’t even mention the protection from CGT and the fact that it turns into a standard ISA (with a potentially vast stash) at age 18. It’s a shame so many people will read it. Link here if you’re interested: https://www.moneysavingexpert.com/savings/junior-isa/

  • 7 The Details Man March 14, 2019, 4:53 pm

    @Rhino – Good to hear from you. You’re right that this is an extreme example. A handy one for showing how generous tax reliefs can be for high earners (and put the fire up the Corbynistas!)
    The idea is that you have a parent whose estate is over the nil rate band. They may want to be passing money down to their children, looking to reduce the IHT bill and/or have limited room left in their pension Lifetime Allowance. Each person has an annual gift exemption of £3,000 which avoids inheritance tax. So by the parent gifting £3,000 into their child’s SIPP they reducing their chargeable estate by £3,000 and thus reducing the future inheritance tax bill by £1,200 when they pass away.

    @Arabella Trullo – Following from above, I picked £3,000 as it’s the inheritance tax exemption. The maximum you can pay into a pension if you aren’t working is £3,600 gross (£2,880 before relief). I appreciate the example is a little confusing. The Investor and I ummed and ahhed before sticking it in as an appendix.

    @Phil – The answer is, you sort of can’t. You could keep saving into your own ISA, then gift out of that, but you lose the wrapper protection. There are some advantages to trusts, but also quite a few disadvantages – there were lots of helpful comments on the Inheritance Tax post. Having been the beneficiary of parents who saved for me, I’m quite biased in thinking it’s a good idea to put money away for your kids and let them manage it. I think teaching your kids about money and saving early on is a very good thing. It has certainly put me in good stead during my life!

    @RS – The child has to be UK resident to have a JISA. However, you don’t need to be UK resident to have a SIPP. But you won’t get tax relief at source. Pension rules for non-UK residents are complicated – so worth speaking to an expat specialist if that applies to you.

    @Alex – Thank you for the kind words. Part of the impetus behind writing this was because there is a lack of good, easy to follow information out there. I think saving for future generations is really important. So if this little piece helps grow consumer awareness I’ll be very happy!

  • 8 The Rhino March 14, 2019, 6:06 pm

    @YFG aka TDM – Thankyou – all is clear.

    On a tangent, Monday’s episode of This Time with Alan Partridge has thrown my much loved acronym world upside-down. Maybe I’ve been using initialisations all these years and didn’t even know it?

  • 9 Prav March 14, 2019, 8:35 pm

    I didn’t understand the “If the child is a 40% tax payer” part. Do you mean of the parent is 40% tax payer? Or does the child earn income which puts them in the 40% bracket?

  • 10 e17jack March 14, 2019, 8:57 pm

    This is a great summary which i could have done with a few months ago! I have just opened JISAs for my 3 kids.

    I struggled initially with finding information on options for retaining control of the money beyond 16 / 18. It seems like trusts are just too complicated, so i decided to live with the mild anxiety of what will happen when my 18 year olds take control of the funds.

    Finding the best platform was an arduous process, with surprisingly poor transparency on fees from some of the major brokers. Often platform fees for a particular broker are the same for both ISA and JISA, but there can be subtle differences – e.g. Fidelity charge a minimum £45 annual fee for their ISA, but £25 for the JISA.

    I was all set to open the accounts with Vanguard, but found a stumbling block with the options for funding the account. With a Vanguard JISA, funds can only come from the linked account (belonging to the parent or guardian) or from a debit card contribution.
    I wanted the grandparents to be able to set up a monthly standing order – but the Vanguard JISA won’t accept a standing order / direct debit from any account other than the linked account.
    For IHT reasons the grandparents wish to contribute directly to the grandchild – so the Vanguard account was a no go! Very frustrating.

    I plumped for Bestinvest in the end and all seems to be good so far.

    Final note – i think it’s worth making a nod to SRI / Ethical / Eco / Green investing when discussing investing for kids. Even if it’s not usually a consideration, hopefully most investors can see an added reason for giving some thought to this when the money is to be used by citizens of the future!
    I decided on the Vanguard Global SRI Global Stock index fund for the JISAs – it’s not exactly squeaky clean, but at least eliminates nuclear arms manufacturers!

  • 11 jimbomad March 14, 2019, 11:09 pm

    A great summary TDM. I often tell friends to max out these kids allowances but it’s particularly difficult to get people excited about Junior SIPPs when they have their own pensions to fill up. But I see this as a great safety net that can be provided very cost effectively by the Bank of Mum & Dad: 18 years of contributions plus 57 years of compounding should lead to a sizeable pot. A perfect example of marginal gains – just run the numbers!
    A few specifics, drawn from personal experience:
    – I would qualify the point that monthly contributions out of income are free of IHT: it needs to be “surplus” income that you don’t need to cover your living expenses (in other words, the taxman does not allow you to gift away all your income and live off just the capital in your portfolio, but you are allowed to regularly gift away all the income you would normally save).
    – for some of the flat fee providers, there is no extra account fee for holding additional JISA account alongside a parent’s ISA/dealing account. In my case, I’m in the process of moving my son’s JISA to Interactive Investor for this reason. Possibly worth noting this type of thing on the Monevator broker comparison table.
    – That appendix is somewhat extreme, and not really a Junior SIPP scenario, but why stop at 90%? You can top it up a bit more by saying the “child” is in the £50-60k income range with kids and therefore subject to child benefit clawback. I believe that would take you to 100% and beyond! [I was actually in this zone once a few years back and it felt very strange having a 65% marginal tax rate – I’m pleased to say I shared my pain with the taxman by making some long overdue Gift Aid donations.]

  • 12 Vanguardfan March 14, 2019, 11:40 pm

    Thanks for this very helpful article. I have a couple of things to add:
    SIPPs can be expensive for small amounts as there are often account fees. I opened pensions for my kids about 7 years ago and went for a conventional personal pension with Aviva (which I opened via Cavendish online for £40). The fund fees are 0.55% with no other fees to pay, and free dealing. I reckon once it gets to £50-60k it will be cost effective to move to a flat fee SIPP provider (there are not many which will hold SIPPs for under 18s so I might wait until then and can go for iWeb).

    The other, slightly niche point is that between the ages of 16 and 18 you can contribute to both a JISA and a full adult (cash) ISA – so you have a total allowance of £24,000 for those 2 years. Likely only to be of interest if your young person has inherited something nice from Auntie Flo, and wants to tuck it away into tax shelters, but worth being aware. Referred to in this MSE guide:
    https://www.moneysavingexpert.com/savings/ISA-guide-savings-without-tax/

  • 13 Vanguardfan March 14, 2019, 11:46 pm

    My kids JISAs are with Charles Stanley Direct, free dealing, platform fee of 0.35% (was 0.25% when I opened it and there now may be cheaper options). Again, once they get to 18 we will move them to a flat fee provider, most of which don’t offer JISAs.

  • 14 skut March 15, 2019, 12:05 am

    My solution to worrying about what the child will do with the money at age 18 is basically to not tell them it exists. I can’t imagine it’ll be too difficult to intercept any post from Charles Stanley, and even if it makes it to them it’ll probably go unopened.

  • 15 Vanguardfan March 15, 2019, 12:09 am

    Oh, and just a comment on IHT and gifting. As I understand it, the ‘gifts from surplus income’ exemption is unlimited (but must be from income and not capital), and is separate from the ‘£3000 per year’ gift exemption. And of course, if you live for 7 years after gifting it’s all moot anyway as no IHT will be payable under the potentially exempt transfer route.

  • 16 Phil March 15, 2019, 9:08 am

    Ha! Good luck with that! I can imagine quite a angry conversation when they realise you’ve been hiding money from them!

    On serious note, not sure what the legal situation is with that, would imagine technically leagally speaking you’re no longer allowed to access their isa account?

  • 17 Vanguardfan March 15, 2019, 9:34 am

    @skut @phil I agree with Phil. It would be illegal to hide someone’s own money from them, and not a model of behaviour that leads anywhere good. Though granted, in practical terms it’s hard to envisage a child taking the parent to court (which in itself should give pause to taking this route. It’s basically an abuse of parental power). You are more likely to be stymied by the processes of the provider. I am sure that when they turn 18, providers will be insisting that future payments come from a card registered to the young adult who owns the ISA.

    My own approach has been to use the JISAs as an education tool for the kids to learn about investing. My 17 year old knows about the money, he also knows the rationale for the strategy to use cash ISAs to shelter an inheritance he has received – he has to open the cash ISAs himself. I obviously can’t stop him from taking out the money, but I trust him not to. Ultimately it’s his money and he needs to be able to manage it.
    Of course, if you want to incentivise ‘good behaviour’ with the money there are other ways to do that – for example make future gifts contingent on the ISA remaining untouched.
    At 18, a lot of their money personality is already formed, and different individuals will likely need different conversations and approaches. You can’t really have sensible conversations in a climate of secrecy imo.

  • 18 Gentleman's Family Finances March 15, 2019, 10:02 am

    Great article – there are simple ways of avoiding tax on children’s accounts.
    I think that the hysteria of inheritance tax is a little absurd – but anything that allows the coffin-dodgers to loosen their grasp on their easy-access cash savers accounts (earning 0.05%) is a good thing.

    I recently wrote about tax savings that families can make and steered clear of JISA and Junior Sipps.
    The JISA is a good product if you have generous grandparents or family/friends who want to give you kids money. We don’t – so I’m not too interested.
    However, I’m not sure many families can afford to max out their own ISAs (& LISAs) and SIPPs – that’s at least £40k for a couple. We can’t! And it might be better to keep our money for ourselves. 🙂 No FIRE without funds and raiding your kids piggy bank is pretty low (so I’ll not put any money in).
    Maybe the best reason for opening a JISA is that some providers have opening promotions that make it worthwhile. For kid #1 I deposited £100 into Orbis JISA and got a £100 bonus. Kid #2…. still waiting for a good promotion.

  • 19 The Rhino March 15, 2019, 11:06 am

    I was thinking along the lines of a reverse Brewsters Millions approach – see what they do with the JISA at 18 and base any future gifting strategy around that. Therefore the JISA pot must be Goldilocks in size. Not too small such that it isn’t taken seriously, but not too big such that it is a disaster if frittered..

    18 year olds can be more sensible than their parents, but they can also be complete lunatics – its a lottery and navigating it is a tightrope!

  • 20 The Details Man March 15, 2019, 12:44 pm

    @Prav – The latter, the child earns income making them a 40% tax-rate payer.

    @e17jack – The broker charges are a bit of minefield. Researching for the article, many brokers have the same fees for JISA/Junior SIPPs, some have slightly different fees and some don’t offer junior products at all. Good to know you’ve had success with Bestinvest.

    @jimbomad – Thanks! I’ve asked TI to amend the ‘gift out of income’ bit to be more precise. I like to avoid jargon as much as I can. But you’re right to say here it’s worth being more accurate. Also, don’t get me started on the quirks of marginal tax rates! Child benefit clawback that results in a 60%+ marginal tax rate. Or the Married Couples allowance that leads to an infinite marginal tax rate cliff-edge. I think Paul Lewis (?) once calculated there were almost 100 different marginal tax rates in the UK.

    @vanguardfan – thanks as ever for your input. I had completely forgotten about the Cash ISA for 16 and 17-year-olds. I’ve asked TI to add this in. I’m really pleased to hear the financial education of the young vanguardfans is going well!

  • 21 ZXSpectrum48k March 15, 2019, 1:41 pm

    I do both JISAs and SIPPs each year for my two children. I have no issues with the JISA. The kids will get access to them within a decade and, as the capital shouldn’t be needed, it will turn into an adult ISA. If you don’t use the allowance you lose it.

    The JSIPP seems more marginal. It’s only a 20% credit on a small amount. The costs of running the JSIPP always seem higher than the JISA. The biggest issue is that it’s such an long-time before they get access to it (57 but it could be 67, 77, who knows). Our current pension system probably won’t last another decade. With over £40bn/annum being lost in tax revenue due to pension allowances (more than the defence budget), nearly all to corporations and higher earners, I see it getting curtailed. Even Osborne wanted to replace SIPPs with a pension ISA. Things like UFPLS probably won’t survive. I’m sort of punting on the JSIPP without really having a clue what it will evolve into.

  • 22 Vanguardfan March 15, 2019, 2:21 pm

    @ZX what do you see changing in the pension system, other than reducing tax relief on contributions (which I agree must come sooner or later, but a bit like the house price crash it seems a long time coming). I’m not sure we will move to a fully ISA based system, as I think there will need be some kind of mechanism for regulating withdrawals to encourage people to use the funds for income stream over time.
    I personally think UFPLS will hang around as long as we have the current pension freedom style withdrawals – it’s very useful for people who have smaller pots that aren’t worth going into drawdown but can be dipped into as and when.

  • 23 Phil March 15, 2019, 2:53 pm

    Thanks for the replies. I think good points regarding the jisa. I had been allocating proportion of my isa but am opening jisa today.

    As prev poster says it can be a good gauge of financial responsibility and I’ll have them actively involved with its management from early age. They’re only 2 and 4 at the moment! It’s likley they will inherit substantially more so is a good training tool and we will help with larger purchases so they dont go raiding the isa and instead see it as long term wealth growth.

    I put £100 a month in each so should be a tidy sum by time they’re 18. And huge if they leave it alone!

  • 24 Brod March 15, 2019, 2:54 pm

    My plan is to hoard the money myself (I might need it!) and, if it works out OK, give them a big lump sum for a house deposit or whatever when they’re earning. And live for as any of those 7 years as I can.

    I also think the inheritance tax thing is overdone. And rules change. I think IHT, property taxes and pensions tax relief will be big targets for the future Govts – too big, too juicy, too easy.

  • 25 Owen March 15, 2019, 3:22 pm

    I am unfortunately guilty of spending my gifted savings. I was fortunate enough to be given £6k and had access to this at 18.

    I didn’t spend anything until after university(21), at which point I thought that £6k wasn’t actually that much because if I started working I’d be making around 1/3 of that per month! My mistake was to factor in £0 of living costs (rolling eyes emoji)

    This was also all in shares and I remember thinking that shares were only every going to lose money because they’d done so badly after the crash.

    It all went on a 6 months ski season in 2010 (despite also working part time) – at least I wasn’t bothered about glamping! At the time this felt like a valuable persuit and I didn’t seek out any guidance to suggest otherwise. In retrospect it should have been used to further my education, get ahead in my career etc. I probably paid for that traveling multiple times over through lost opportunity but it’s done now! Lesson learnt I hope!

    I considered myself to be relatively good with money, generally saving and not spending but, I didn’t understand the stock market and it’s risks or how difficult it is to save when your earning. My point is that 18 is very young to be given control of any significant sum of money, even if they have the right intention. As commenter above, financial education is key

  • 26 The Rhino March 15, 2019, 3:29 pm

    You could try and find out what the pension situation looked like in 1950, if that bore little resemblance to the situation today, then you could argue that the situation in 70 years time when your JSIPPs will likely be accessed will also be very different. In that respect, I would tend to agree with ZX that its a punt with almost no idea of what you’re going to get at the end of it. Wouldn’t necessarily put me off, but I’m spent up filling my own ISAs/SIPPs/JISAs so the JSIPP is an easy one to give a miss.

  • 27 Alex March 15, 2019, 4:57 pm

    @Owen

    I had a similar sum of money stashed away at age 18 (although it wasn’t actually a gift in my case but profit I had made from a small business I had run on the side while at school). I spent the lot on a fun gap year abroad before university and I don’t regret it in the slightest. Stop beating yourself up, you probably had a good time on that ski season. I love investing but there’s more to life.

  • 28 The Rhino March 15, 2019, 5:24 pm

    Yes – with the benefit of hindsight you realise that opportunities are often very tightly time-bounded. Its possible that eventually you will thank your lucky stars you blew the money and took the trip?

  • 29 Phil March 15, 2019, 5:41 pm

    Absolutely, of my boys splash it on a trip/ experience of a lifetime then great. That’s the whole point of life to use money to enjoy it.

    If they waste it on a car and fancy clothes, then maybe not so much…

  • 30 Phil March 15, 2019, 5:43 pm

    To add. A ski season and ski teacher course is what I always wanted to do around uni time and still regret not doing so.

  • 31 Vanguardfan March 15, 2019, 5:53 pm

    Small but useful amounts when you are young can be fantastic, and should be spent, imho. I had a couple of small inheritances when I was at school and college. I spent them on items I couldn’t have had otherwise, but derived a lot of use from (camera, my first car) and I went travelling. The fact that I can still remember what I did with the money is significant I think!

  • 32 ZXSpectrum48k March 15, 2019, 6:00 pm

    @vanguardfan. The obvious issue is that the number of taxpayers falls by 15-25% over the next 20 years or so. Any easy source of tax revenue will be front and centre. So at best we might just get a continued reduction of pension tax benefits; say a flat tax credit of 25% on £20k rather than £40k; UFPLS salami sliced over time from 25% to 20% then 10% etc. At the more extreme end, both left and right could overturn the system. The Tory libertarians want less state support and the welfare state rolled back; if they are willing to privatise the NHS, cutting pension tax benefits won’t fluster them. On the left, the growing preference for MMT brings with it the JG (or at least UBI) requiring funding. £42bn/annum, taken mainly from the better off, looks tasty.

    Ten years ago this month, I put the £235k into my pension with 40% tax relief. Now, I could only put in £40k, a reduction of 83%. In fact, I don’t put anything in since I was forced to take fixed protection in 2011/12 to protect my LTA at £1.8mm, which is now just £1.03mm, a reduction of 43%. That is just one decade. Who has any clue over five decades or more?

  • 33 JonWB March 17, 2019, 11:09 am

    Something that hasn’t been mentioned is that a JSIPP may end up being very valuable for locking in potential grandfathered rights many years into the future. You don’t need to contribute every year, you just need to get one for minimal cost.

  • 34 Theta March 21, 2019, 9:28 am

    A child being a 40% taxpayer? Presumably that’s not from earned income, so you are talking about a hypothetical situation of a child with passive unsheltered income of more than £50k p.a. I guess that this child has their own tax advisor and financial planner already.
    Also, the IHT benefit of gifting £3k is independent of the SIPP. It would apply equally if the money is placed in any other account, and for a fair comparison you should take it out of the equation. In which case, and given limited lifetime allowance for the child as well, is it worth getting only 20% relief versus 40%+ from future contributions when they start working?

  • 35 E&G March 23, 2019, 9:41 pm

    Good point JonWB and for that reason you’ve prompted me to open JSIPPs for my two children on the off chance I’ll have a higher disposable incomes in future tears. In the meantime I am content to let the grandparents put a wee bit of money into a cash JISA (they’d never accept the risks with stocks and shares) and let them spend as they see fit to learn about managing money at 18 – hopefully I’ll have taught them some money lessons as they get older but I dare say their grandparents will be chuffed if it let’s them see a bit of the world, buy a car etc. Beyond that I’ll instead concentrate on making sure their parents are financially secure so they can be helped out with a few quid for rent or whatever else they need. Unless you have far more disposable cash than the average family has and are desperate to avoid paying what you should in tax then it’s senseless in my view to put large chunks of your family wealth into the hands of teenagers.

  • 36 Gally March 25, 2019, 3:59 pm

    Can you please produce a future article on the use of discretionary trusts where trustees control the distribution and use of funds in line with a trust deed.

    Thanks

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