Tax Efficient Ways to Save for Children

Saving for a child is one of the most satisfying things you can do with your money — and one of the easiest places to lose money to tax if you don't choose the right home for it. The good news is that the UK has some genuinely generous wrappers designed for exactly this job. Here's how to use them well, and where the traps are.

Why the wrapper matters more than the amount

A child has the same personal allowance as an adult — £12,570 — and their own savings allowance. In practice, most children pay no tax on modest savings interest anyway. So why bother with a tax-efficient wrapper?

Because the sums can get bigger than people expect. Put £250 a month aside for eighteen years and you're contributing £54,000, before any growth. If that money sits in an ordinary account paying interest, the income could eventually breach allowances and, in some cases, be taxed on you rather than the child. Using the right wrapper from day one removes the problem entirely and keeps the paperwork simple.

Junior ISAs: the workhorse of children's saving

The Junior ISA is the default choice for most families, and for good reason. For the 2025/26 tax year the allowance is £9,000 per child, and the money grows free of income tax and capital gains tax. Interest, dividends and any capital growth are all sheltered.

• Any child under 18 who is resident in the UK can have one, provided they don't already hold a Child Trust Fund.
• You can open and manage it, but at 16 the child can take over the management. At 18 the money becomes theirs to do with as they wish — you can't claw it back.
• There are two types: cash and stocks & shares. You can hold one of each, or switch between them.
• Anyone can contribute — parents, grandparents, godparents, family friends — as long as the total stays within £9,000 per child per tax year.
• If you move a Child Trust Fund across, it doesn't count against the annual allowance.

For a child under ten, a stocks & shares Junior ISA is usually the more sensible long-term home. Over eighteen years, cash savings risk losing ground to inflation, whereas shares have far more time to ride out the ups and downs. As they approach 18, you may want to shift some of it into cash so the money isn't exposed to a market fall just when they need it.

Junior SIPPs: the very long game

If you're saving for a child's future beyond university or a first home, a Junior SIPP is worth a look — mainly because of the government top-up. Contributions get basic-rate tax relief at source, so £2,880 of your money becomes £3,600 in the pot each year. For a grandparent in a position to fund it regularly, that's a 25% uplift for doing nothing clever.

The catch is obvious: the money is locked up until the child reaches pension age, decades away. It's excellent for a small, steady drip of contributions alongside a Junior ISA, but it should never be the only thing you save for a child. Think of it as the compounding tail-end of the plan rather than the main event.

Children's savings accounts and the £100 rule

Ordinary children's accounts still have a place — they're accessible, easy to explain to a child, and useful for pocket money and short-term goals. But there's a rule parents frequently miss.

If a parent gives money to a child under 18, and the interest on that money exceeds £100 gross in a tax year, the whole amount is taxed as the parent's income — not the child's. It doesn't matter whose name the account is in. Cross the line and the tax advantage of using the child's account disappears.

Two important points:

• The rule applies to gifts from parents only. Money from grandparents, other relatives and friends is taxed on the child, who will almost always have allowance to spare.
• The £100 limit applies per parent, per child — so £200 combined before any problem arises.

If you're saving meaningful sums in your own name for a child, a Junior ISA avoids this entirely.

Premium Bonds, bare trusts and other options

Premium Bonds are held by many families because prizes are tax-free and the capital is safe. A child can hold up to £50,000, managed by a parent until they turn 16. The trade-off is that the return isn't guaranteed — you might win nothing, or a great deal. Treat them as a secure home for money you'll need in the medium term, not as a growth engine.

Money given to a child outright sits in what's called a bare trust. Designated accounts — an account in the parent's name labelled "for Jack" — work this way too. The child has an absolute right to the money at 18, and neither you nor anyone else can change that. That's fine if you're comfortable with it, but be deliberate. A bare trust grows free of capital gains tax only up to the child's annual exempt amount, and it still falls inside the estate of whoever gave the money until it's actually gifted.

Putting it together

A sensible, practical structure for most families looks like this:

• A Junior ISA is the core holding, funded monthly by direct debit so it happens without thought. Increase contributions when you can — even small rises compound significantly over eighteen years.
• Keep a modest children's savings account or Premium Bonds for money the child will spend sooner, and for teaching them about money.
• If grandparents want to help, point them at the Junior ISA. Their gifts sidestep the £100 parental rule and keep the tax treatment clean. Regular gifts out of surplus income can also reduce their estate for inheritance tax purposes — worth mentioning to them.
• Consider a Junior SIPP once the Junior ISA is running comfortably, especially for very young children with decades of growth ahead.

Finally, talk to the child about it as they grow up. A pot that appears from nowhere at 18 is a windfall; a pot they've watched build for a decade is a financial education. The tax wrappers do the heavy lifting, but the habit is the real gift.