Best ISA options for grandparents

Whether it’s in the form of cash in birthday cards or something more substantial, the idea of grandparents helping to give their grandchildren a financial head start is not new. In fact, our client services team regularly hears from grandparents looking to put some money away for young children. So, what options do grandparents have?

Can I open a Junior ISA for my grandchildren?

While looking for options, a Junior ISA (JISA) usually comes near the top. The £9,000 tax-free annual allowance for every child (up to the age of 18) is very generous and the money is locked away until the child turns 18, meaning there is potential for the money to benefit from compounding over a long timeframe. Unfortunately, grandparents looking to take advantage of Junior ISAs can’t open one themselves. The HMRC rules are very clear: only parents or guardians with parental responsibility can open a Junior ISA for a child under 16 years old. If the child is 16 or 17 years old then the child can open a JISA itself.

However, grandparents and other family members or friends can contribute to a child’s Junior ISA, up to the maximum £9,000 annual allowance. Once a parent or guardian has opened the JISA, they will be able to share the details for making contributions.

The process for contributing to a grandchild’s JISA may vary for different providers. Here at Nutmeg, for example, all you need is Nutmeg’s sort code and bank account number along with the grandchild’s custodian number as a reference (You can find more information on how to pay in to a JISA here). Once you have this information, you can make a one-off contribution via a bank transfer or set up a standing order if you’d like to make regular contributions.

For grandchildren that don’t have a Junior ISA yet, setting one up for a parent or guardian can be quick and straightforward. There are two types – cash and stocks and shares – and it’s possible for grandparents to be the main or sole contributors.

An ISA could also be your ally

Whether you’ve contributed the maximum to a Junior ISA or you’d like the flexibility of accessing the money you’re setting aside for the future before your grandchild turns 18, for example for school fees, your own ISA allowance could be useful. Some providers, like Nutmeg, allow you to split your £20,000 annual ISA allowance into different pots each with their own investment goal. Many Nutmeg clients use our stocks and shares ISA to do just this:create several pots under the ISA tax wrapper and dedicate each pot to a goal. Each pot can have its own name, investment style, risk level and timeframe, and our dashboard, app and calculators can help you know if you’re on track to help your grandchild with their university fees, deposit for a first home or that unforgettable honeymoon.

In conclusion, if you want to help your grandchildren jump start their adulthood, JISAs and ISAs can help. Our client services team would be more than happy to discuss your options with you.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.

To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future.

If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.