Tax Year End Planning Ahead of Budget Children and Grandchildren Savings

You been planning hard for your tax year end or planning early ahead of the Budget just in case there are any changes overnight.  You maximised your pension contributions, allowances, ISAs, inheritance tax allowances and capital gains tax allowances.  You think you have done it.

What about your children or grandchildren?  They have allowances too and people often forget this.

Junior ISA Allowance £9,000 pa

A Junior ISA is like normal cash and stocks and shares ISAs in that it grows income tax free as dividends (from stock ISA investments) and interest (from Cash ISA investments) are tax free.  In addition, they are also capital gains tax free.

• Each child (aged 0-18 years) has an annual allowance of £9,000 pa.
• A Junior ISA can only be opened by a parent.
• Parents and Grandparents can pay into Junior ISAs for children or grandchildren
• Any investment by a parent or grandparent is still treated as a gift for inheritance tax purposes
• If within the person making the gift’s £3,000 annual exemption it is immediately outside the estate for Inheritance Tax.
• If over and above the person making the gift’s £3,000 annual exemption, it is a potentially exempt transfer (PET) and is outside the estate for Inheritance Tax after 7 years.

Pension Contributions £3,600 pa

• Assuming a child is not working and has no income i.e., a non-taxpayer, parents and grandparents can still contribute up to £2,880 pa net + have 20% income tax relief added to the pension fund= Gross £3,600pa (in total for all contributions form all parties) for children or grandchildren.
• This is free tax relief of £720 for a non-taxpaying child.
• Regular pensions contributions for children each year until they are aged 18, may make them pension fund millionaires by the time they reach retirement.
• Any pension contribution by a parent or grandparent is still treated as a gift for inheritance tax purposes
• If within the person making the gift’s £3,000 annual exemption it is immediately outside the estate for Inheritance Tax.
• If over and above the person making the gift’s £3,000 annual exemption, it is a potentially exempt transfer (PET) and is outside the estate for Inheritance Tax after 7 years.

Giving Children/Grandchildren a ‘Head Start’ …

You will be helping them build funds towards future capital needs:

• University fees
• Marriage
• House deposits
• A car
• Starting a Business
• Taking that ‘Gap Year’ trip to Australia.
• Retirement or even the choice to retire early.

Regular Gifts to Junior ISAs or Pensions

You may be aware that gifts from your excess/surplus ‘normal’ income are immediately outside your estate for inheritance taxes.  If you have excess income over expenses, keep records of this and then consider regularly gifts into your children or grandchildren’s Junior ISAs or pension schemes.

Foreign Income/Gains Regime

If you have recently returned to the UK from living overseas and have been out of the UK for 10 years or more, you may make use of the 4 Year Foreign Income and Gains (FIG) rules that allow you to draw income and realise capital from overseas assets and wealth for the first 4 years of being back in the UK.  This may also help, if you wish to make gifts to children.

Action Before Autumn Budget 2025

Whilst we do not think there will be any major changes to the above on 26^th November (Budget Day), there is always the chance that changes could be made that take effect on 6 April 2026Make sure you not only your own pensions, state pensions, and allowances, you need to also check and use your children’s and grandchildren’s allowances.

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