Ensuring that your wealth is transferred to your beneficiaries in an effective and tax-efficient manner upon your passing is a key part of your financial plan.
You may see Inheritance Tax (IHT) planning as something to consider later in your life. But there are opportunities to start the estate planning process much sooner, with the added advantage of passing wealth to your children and grandchildren.
For example, making use of Junior ISAs (JISAs) has two benefits:
- You are making tax-efficient gifts to the next generation.
- Your gifts help to mitigate the eventual effect of IHT on your estate.
Read about how JISAs work and why they can be a valuable and effective part of your estate planning.
You can contribute up to £9,000 each year to a tax-efficient Junior ISA
A JISA is a tax-free savings or investment account available to children under the age of 18 who are resident in the UK.
They are designed to be highly tax-efficient. Consequently, all income and capital gains generated within the account are free from UK tax, and no Income Tax or Capital Gains Tax (CGT) is paid on withdrawals.
You can open and manage the JISA account on behalf of your child or grandchild. However, it is important to note that the funds legally belong to the child and will automatically pass to them upon reaching 18.
There are two types of JISA:
- Cash Junior ISA, which is similar to a savings account
- Stocks and Shares Junior ISA, where, as the name suggests, funds are invested
For the 2026/27 tax year, up to £9,000 can be contributed into a JISA for each child. This amount is fixed until 2031.
It is important to understand how your Inheritance Tax liability is calculated
Inheritance Tax is charged at 40% of the value of your estate exceeding the available nil-rate bands.
The current nil-rate band is £325,000. If you pass your home on to your children or grandchildren, you can also benefit from up to £175,000 from the residence nil-rate band. This can increase the IHT-free threshold up to £500,000. Those figures are frozen until at least April 2031.
You can also pass your entire estate to a spouse or civil partner without IHT, and they inherit your unused nil-rate bands. This means you could pass on up to £1 million between you.
However, the value of your estate can easily rise above these thresholds over time, especially if you own your own home. Additionally, pension funds will be included in the value of your estate from April 2027, potentially making you even more likely to exceed the nil-rate bands.
As a result, estate planning is increasingly important, and even relatively simple measures can help reduce the amount of IHT your beneficiaries may be liable for.
Making gifts is an effective way to reduce your Inheritance Tax liability
One effective way to reduce the amount of IHT payable on your estate is to make lifetime gifts.
You can gift up to £3,000 each year without it being added to your estate. That amount applies to each individual, so you and a partner can gift £6,000 in total annually.
Any gifts above that (that are not covered by another gifting exemption) will be deemed “potentially exempt transfers”, or PETs, if made to individual people or ‘’chargeable lifetime transfers’’, or CLTs, if made to most types of trust. These fall under the “seven-year rule”, meaning that they will be exempt from IHT if you survive for seven years after making the gift.
If you pass away within the seven-year time frame, the gift will use up your nil rate band and, if the gift exceeds the available nil rate band, your beneficiaries may pay some IHT on the gift, calculated using a sliding scale known as taper relief.
You can also make unlimited gifts out of your surplus income. These are regular amounts that are made from your excess income (rather than capital) and may be immediately exempt from IHT, assuming making them does not affect your usual standard of living.
Junior ISAs can form an important part of your estate planning
As you can appreciate, strategic planning involving the use of your annual exemptions, gifts from surplus income, and PETs/CLTs can reduce your IHT liability.
JISAs, in addition to being a tax-efficient way to save for children, can be an integral part of your planning.
Money paid into a JISA is treated as a gift to the child. Once contributed, it is no longer part of your estate, provided the conditions highlighted above are met.
Furthermore, any growth in the value of JISAs you contribute to will sit outside your estate.
This means that regular contributions into a JISA can gradually reduce the value of your estate for IHT purposes while building a valuable fund for your child.
By structuring contributions within your gift allowances, you can ensure that funds are removed from your estate efficiently and with minimal tax risk.
There are some key issues you need to be aware of
As you have read, JISAs offer clear benefits in terms of tax planning and passing wealth to your children and grandchildren.
However, there are three important issues to bear in mind:
- The annual JISA contribution limit restricts how much you can contribute each year. Because of this, these payments may need to be part of a wider estate plan.
- The JISA passing to your children or grandchildren automatically when they reach 18 may not be something you favour, as you may have concerns about how the funds will be used.
- You need to keep accurate records of all the gifts you make, to ensure they qualify under IHT exemptions and avoid complications later.
Because of these issues, you should view JISAs as part of your holistic financial plan rather than as a one-off solution.
By strategically using JISAs as part of your wider estate planning process, you can reduce the size of your taxable estate, pass wealth to your children, and take advantage of tax-efficient growth.
Get in touch
As always, professional advice can help ensure that any strategy is aligned with your broader financial goals and family circumstances.
If you have any questions about JISAs, estate planning, or other financial planning issues, please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
The value of your investments (and any income from them) 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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.