[CARDRIVER CAROL]

I have a spare £10-£12k id like to give to babies. One already has a JISA..
One parent is afraid 18 will be too young to cope with a windfall, and would like something at 25.
What are the current tax implications of SIPPS when retiring? 57 years is a long way away.
I’m already saving £200 pm in my Nationwide a/c at 6.50%..

[Richard Berry]

Thanks for your question on Junior ISAs. They are definitely one of the best tools to give children and grandchildren a head start in life, but as you say, there is a danger in giving 18-year-olds access to a large amount of money. This is a common worry, when I interviewed Justin Urquhart Stewart, the founder of 7IM wealth management years ago, he did quip, “don’t put it in a junior ISA so the silly kid gets it when they’re 18. Because the first thing, that’s going to happen is it disappears behind the bar…”

But, I do think so much depends on how you educate children about money and a Junior ISA is exactly the right tool to do that. By getting children involved in the investment process they will learn and grow up understanding the power of compounding returns. One way I get my kids involved is by getting them to pick stocks for their JISA. Fortunately companies like Nike, Roblox and Snapchap are all public compaies you can buy shares in.

Two of my favourite accounts are the Beanstalk JISA (which won best JISA from customer votes in our awards) and Hargreaves Lansdown’s JISA, where you can buy individual stocks as well as funds (and it is also free with no account charge or dealing commission).

So I asked both firms to answer your question, and the good news is that most Junior ISA accounts remain invested after they convert into an adult ISA at 18:

Sarah Coles, Hargreaves Lansdown Head of Personal Finance and Podcast Host for Switch Your Money said this:

“When you give money to children, you have a couple of very straightforward options. A Junior ISA is the most tax-efficient, because growth is completely tax free. You can put £9,000 a year into the JISA, so depending on what is already being paid in, you could make one gift now and one next April, at the start of the new tax year, in order to give the full £10,000-£12,000.

Alternatively, you could consider a bare trust. Assuming you’re not a parent of the child, this will be taxed as belonging to the child, which in most cases means growth and income is tax free. This can be set up easily through an investment company, and you can put in as much as you like each year.

Both are cost effective, and in some cases, you can get a JISA without charges. However, both belong entirely to the child at 18, and it will be up to them how they spend the money.

It’s fairly common for people to worry whether 18 is old enough to make sensible decisions with the money. However, among HL JISA clients, when they mature into adult ISAs, the vast majority still have money invested a year later and almost four in five remain with it to the age of 24. We also did a piece of research asking people what they would have done with a windfall at 18, and the most common answers were saving and investing. If you have a while until they reach 18, you have an opportunity to use the JISA to educate them about investment, and help them build a sense of ownership of the money.

If none of this is reassuring enough, you have two alternatives. You can either give the money to their parents to make decisions on their behalf, or you can set up a trust which specifies they will benefit at 25. Bear in mind these kinds of trusts come with costs, and there will be tax implications too.

The tax on a SIPP works in the same was as any other personal pension. Growth within the SIPP is free of tax. It’s when you withdraw money from the pension that it can be taxed.

Assuming the date for accessing it rises to 57 before you’re old enough to get your hands on it, then at that point you can move your SIPP into drawdown and take 25% of it as tax free cash (you can take this all at once or in a number of lump sums as you go along). After that, any income is subject to income tax – once you make more than the personal allowance of £12,570 a year. Once you qualify for the state pension, that income will also count towards your taxable income.

If you want to retire before 57, it’s worth setting up stocks and shares ISAs and savings to supplement your income until you reach retirement age. If you can do so through ISAs, that income can be tax free. Whatever age you retire, having ISAs will give you flexibility over how you take your income, to help keep a lid on tax bills.”

Cem Eyi, the Co-Founder, Beanstalk & KidStart said:

“It’s a great question and one we often hear from families keen to give their children or grandchildren a meaningful financial head start.

There’s understandable concern about accessing money at 18. But our research at Beanstalk paints a more encouraging picture:

• We see only about a fifth of maturing balances being withdrawn at Junior ISA maturation. The accounts where everything has been withdrawn also tend to be those with smaller balances, typically less than £1,000.
• The majority keep the money invested and plan to use it sensibly, typically for university, travel, or a first home.
• Over 90% of those we surveyed said they felt responsible enough to manage their JISA when the time came.

So while the account legally becomes theirs at 18, the idea that it’s routinely spent recklessly simply doesn’t reflect reality.

And it’s worth asking: is a 25-year-old really that different from an 18-year-old in terms of money mindset? Either a young person has been helped to build healthy financial habits or they haven’t. Encouraging saving and investing early on can help shape those attitudes well before they gain access to the money.

University, training or getting started in adult life all come with costs. Families often need to provide some financial support at 18 anyway. The JISA offers a tax-free, long-term way to prepare for that moment.

For those still keen to delay access beyond 18, a balanced approach could be for example:

Use the Junior ISA allowance (up to £9,000 per child, per tax year) to benefit from tax-free investing and long-term growth.
Keep some savings in the parent’s name, to be gifted when the time feels right – such as age 25. A Stocks & Shares ISA could work here given the long time horizon.

When it comes to Junior SIPPs; they can be a great long-term tool, particularly with the government top-up (e.g. £2,880 becomes £3,600). But access is locked until at least age 57 and that age could rise. So while they’re tax-efficient, they’re best seen as a supplement for retirement, not a tool for supporting young adults in their twenties.

Of course, this isn’t personal financial advice – just my own view based on what we’re seeing from families using Beanstalk and our research into how young adults actually use their JISAs”

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