Junior ISAs Could Help with Inheritance Tax Planning as More Families Utilise Allowance

Why It Matters

With pension wealth soon subject to inheritance tax, JISAs offer a low‑risk, tax‑free avenue for inter‑generational wealth transfer, reshaping estate‑planning strategies for middle‑income families.

Key Takeaways

• Pension assets become taxable in estates from April 2027.
• JISA gifts up to £3,000 annually, £6,000 with carry‑forward.
• Tax‑free growth, no income or capital gains tax on JISA.
• Funds locked until age 18, supporting major life events.
• JISA accounts maximizing allowance rose to ~78k in 2023/24.

Pulse Analysis

The upcoming inheritance‑tax overhaul, which will treat pension pots as part of a decedent's estate, forces advisers and families to reconsider traditional wealth‑transfer mechanisms. Pensions have long enjoyed a tax‑exempt status in estate planning, but the 2027 change erodes that shelter, prompting a search for alternatives that preserve value without triggering a tax bill. Junior ISAs, already popular for their tax‑free growth, now sit at the intersection of gifting flexibility and long‑term planning, offering a pragmatic bridge between immediate support and future financial independence.

A Junior ISA allows a parent or grandparent to contribute up to £3,000 per child each tax year, with an unused portion rolling over for one additional year, effectively doubling the potential contribution to £6,000. Unlike regular savings accounts, any interest, dividends, or capital gains earned within a JISA are exempt from income and capital‑gains tax, and the account is insulated from the parental tax‑band rules that can otherwise penalise child earners. The funds remain inaccessible until the child reaches 18, ensuring the money is earmarked for milestones such as university fees, a first car, or a property deposit, while also giving contributors the satisfaction of witnessing the benefit.

Market data reflects growing confidence in this approach: the count of JISA accounts that fully utilise their allowance climbed to roughly 78,000 in the 2023/24 tax year, after a dip during the pandemic. Financial advisers are urging clients to embed JISAs within a broader estate‑planning framework, balancing the need for liquidity in retirement against the desire to seed the next generation's finances. While the vehicle is powerful, it is not a substitute for a diversified strategy; contributors must ensure they retain sufficient personal reserves, as contributions cannot be reclaimed once made. This nuanced use of Junior ISAs signals a shift toward early, tax‑efficient wealth distribution in a changing fiscal landscape.

Junior ISAs could help with inheritance tax planning as more families utilise allowance

The inheritance tax system is facing an overhaul in the coming years, with pensions forming part of taxable estates from April 2027.

Number of JISA accounts maximising their allowance by tax year

| Tax Year | Number of accounts |

|----------|-------------------|

| 2019/2020 | 80,060 |

| 2020/2021 | 55,570 |

| 2021/2022 | 70,660 |

| 2022/2023 | 71,910 |

| 2023/2024 | 78,330 |

Adrian Murphy, chief executive of Murphy Wealth, said:

“A lot of families are exploring different ways of passing down wealth to their loved ones earlier in life.

JISAs are a great way of doing that, providing tax‑free growth and income that can compound over a significant period of time.

With pensions becoming part of people’s estates from next year – the decision about which wouldn’t be reflected in these figures, as it was announced in the Autumn 2024 Budget – we would expect to see a further acceleration in the number of JISAs being maximised.”

---

The benefits of a JISA for inheritance planning

There are many ways to pass on money to grandchildren or children. Pension wealth is set to form part of an estate for inheritance‑tax purposes from April 2027, which may affect how much can be passed on.

You could give financial gifts during your lifetime, but if they exceed inheritance‑tax gift allowances there is a risk of a tax bill if you pass away within seven years of the transfer.

JISAs provide another tax‑efficient way that parents and grandparents can give their loved ones a financial boost.

• You can gift up to £3,000 a year, either to one person or several people, without the money being liable for inheritance tax.

• If you don’t use all your allowance, any unused amount carries over into the next year, but only for one year – so you could technically put £6,000 into a JISA.

Murphy added:

“Children can't access the accounts until they are 18, which also provides a level of assurance that the money will be used for some of the big life events that take place around that age – whether it's buying a first car, help with university costs, or taking that first step into a career or onto the property ladder.

And the people making the contributions will likely get to see their child or grandchild enjoy that money, which may not be the case with other ways of tax‑efficiently passing wealth down.”

Alice Haine, personal finance analyst at Bestinvest, highlights that the tax benefits mirror those of an adult ISA – with no capital gains or income tax.

“JISAs sidestep the parental tax rules.

If a child earns more than £100 in interest on money gifted by a parent and held in a regular savings account, that income is taxed as if it were the parent’s – an issue that does not apply to JISAs.

Parents should tread carefully, however. There’s no point topping up a JISA if they might require the money for their own needs, because they can’t get it back.”

However you plan to pass wealth onto family members, Murphy said it’s important you have a plan and don’t leave yourself short.

“Speak to a financial adviser who can provide guidance on how to sustainably gift money to children and grandchildren, while ensuring your financial requirements are taken care of in retirement.”

---

Related video: Rishi Sunak – MoneyWeek Talks – https://youtu.be/XriHXatOiI0 (YouTube)