Before the budget, parents use Junior ISAs to lower their inheritance tax obligations

According to data, more parents are opening Junior ISAs for their children and grandchildren as a result of rumors of budget tax increases

How can an inheritance tax bill be decreased using them?

According to new data, more parents are investing in Junior ISAs (JISA) in an effort to protect their income from potential tax risks in the Budget.

With investment platform Hargreaves Lansdown, October 2025 saw the highest number of JISA openings ever. On average, 870 was deposited into these new accounts.

According to Hargreaves Lansdown data, junior ISAs have been becoming more and more popular this year; four of the top five months for new Hargreaves Lansdown JISA openings fall in 2025.

It has coincided with growing rumors that the upcoming Autumn Budget on November 26 will target the wealthy with higher taxes, and that the cash ISA allowance may also be reduced.

Parents seem to be aware of these issues and are thinking about the most economical way to protect and pass on their wealth to their offspring.

Parents and grandparents can give money to their children in a tax-free wrapper by using a Junior ISA.

A Junior ISA allows you to contribute up to £9,000 per tax year. You may open a junior ISA for stocks and shares, cash, or both. Income tax, capital gains tax, and savings interest accumulated in an ISA are not taxable.

Although the child is the JISA's legitimate owner, they cannot take money out of the account until they are eighteen.

In addition to lowering inheritance tax obligations, a JISA is an excellent way for parents and grandparents to accumulate a tax-free nest egg for their children. We examine how this is accomplished.

How can you protect yourself from inheritance tax with JISAs?

Grandparents who wish to lower their inheritance tax obligations by making gifts while they are still living may find a JISA appealing.

For inheritance tax purposes, contributions to Junior ISAs are regarded as gifts. You can donate up to £3,000 annually through the annual exemption without worrying about the money being subject to inheritance tax after they pass away. This can be distributed among several individuals or given to just one. Additionally, you may carry over any unused annual exemption to the following tax year, but only for a single tax year. Additionally, there is a small gift exemption; learn more about this in our article on inheritance tax avoidance.

If you pass away within seven years of the gift being given, your contributions to a junior ISA will be subject to inheritance tax. See our guide for more information about the taper rate and the seven-year gift rule.

Because money held in a JISA is shielded from additional taxes on interest or capital gains, transferring wealth through contributions to a JISA may also be preferable to giving it as a cash gift.

You will need to consider whether the recipient will be mature enough at the age of 18 to use the money wisely rather than going overboard.

JISA substitute.

Contributing to your child's or grandchild's pension is another tax-efficient method of transferring your wealth.

In recent years, junior self-invested personal pensions (SIPPs) have grown in popularity as a means for some parents and grandparents to protect their children from paying inheritance taxes while also providing long-term support.

The drawback is that until the recipient reaches the Normal Minimum Pension Age, which is currently 55 but could rise to 57, they won't be able to access the funds.

However, investing for their retirement early gives your money several decades to compound and grow, which could significantly increase their pension fund.

The Junior SIPP allows any adult to contribute £2,880 per year, which increases to £3,600 after 20% tax relief is taken into account. When the recipient turns eighteen, they regain control over the Junior SIPP.

Junior SIPP payments, like JISA contributions, are considered gifts for inheritance tax purposes, so if you pass away within seven years, they may be subject to the levy unless they fall within inheritance tax gifting allowances.