As we grow older, our financial priorities change. It looks like this is especially the case for grandparents who are big fans of investing accounts like Child SIPPs and the Junior Stocks and Shares ISA. Here’s what you need to know about investing money in these accounts and how you can learn some lessons from the older generation.

What is a Child SIPP? This is often referred to as a Junior SIPP. With SIPP standing for ‘self-invested personal pension’, it is essentially a pension savings account for children. This may sound a bit ridiculous to have at such a young age but it’s a really smart option. These accounts work like this:
• You can invest up to £2,880 per child per tax year;
• 20% tax relief will apply, topping up the account to give you a potential total of £3,600;
• Investments are then free from UK income and capital gains tax;
• The other benefit is that gifts into a Child SIPP can fall outside your estate for inheritance tax (IHT) purposes;
• Money in the account can only be withdrawn once the holder turns 55 (rising to 57 in 2028)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 compounding returns over time.

How does a Junior Stocks and Shares ISA work? These accounts 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;
• Your child or grandchild cannot gain access to the funds until they turn 18.

The biggest issues to consider when considering this type of account are:
• Locking the money away means they’re not very flexible;
• Investment selection must be wise as some choices could lose value.

Why do grandparents favour the Child SIPP & Junior Stocks and Shares ISA? 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.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of September 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.