Investing for children or grandchildren – the Child SIPP and JISA
47% of grandparents increased their investing contributions for their grandchildren over the past year. They are big fans of investing accounts like Child SIPPs and the Junior Stocks and Shares ISA. So here’s what you need to know about investing money in these accounts and how you can learn some lessons from the older generation.
So first off, what is a Child SIPP?
These accounts work like this:
You can invest up to £2,880 per child per tax year
20% tax relief will be applied by the government, topping up the account to give you a potential total of £3,600
Investments are then free from UK income and capital gains tax for the child’s lifetime (as the rules stand currently)
The other benefit is that gifts into a Child SIPP can fall outside your estate for inheritance tax purposes, either if it falls within the £3,000 annual gift allowance, as long as you survive 7 years, or if the gift comes from surplus income
Finally, money in the SIPP account can only be withdrawn once the holder turns 55 (rising to 57 in 2028)
Even with just a small amount deposited, the fund would potentially grow to a high level by the time your child reaches retirement age. This is due to the power of compound interest over time.
Another key savings vehicle for your children or grandchildren is the Junior Stocks and Shares ISA
These accounts are also known as JISAs and work in a similar way to a normal stocks and shares ISA but with a few tweaks:
The maximum deposit amount is £9,000 per tax year, compared to £20,000 for an adult ISA
Some or all of the gift can fall outside of your estate, if the gift comes from surplus income and you survive 7 years
Your child or grandchild cannot gain access to the funds until they turn 18.
The biggest issues to take into account when considering this type of accounts are:
Locking the money away in the stock market means they’re not very flexible if you need unexpected access. There is no access to the SIPP account until the child reaches 55, and to the Stocks and Shares ISA until 18.
And your choice of investment funds must be wise to increase your chances of getting the best growth outcomes.
According to research from Scottish Friendly, 47% of grandparents increased their investing contributions for their grandchildren over the past year. Child SIPPs were the most popular accounts and Junior Stocks and Shares ISAs were a close second. This makes sense because these accounts provide an excellent way for grandparents to pass on some of their wealth. Using these allowances is a secure and tax-efficient way to provide for your family and potentially create multi-generational wealth.
The structure of these accounts prevents the holders from dipping into the money early, so grandparents can rest assured that this money saved away and invested can only be used when the time is right and the recipients reach a mature enough age.