Martin Lewis has warned savers that junior ISAs do not protect money from inheritance tax, despite their tax‑free benefits.
Speaking on his BBC podcast, he said the accounts are designed to shield returns from income tax and capital gains tax but offer no exemption from inheritance tax rules.
“The tax‑free element of junior ISAs is all about the income – on savings that’s interest, on shares that’s dividend and the capital gains on any growth,” he said. “It is not a protection from inheritance tax.”
Junior ISAs allow parents, grandparents and others to save or invest up to £9,000 a year for a child under 18, with any interest, dividends or gains generated within the account free from tax.
However, Mr Lewis said there is a common misunderstanding about how these contributions are treated for inheritance purposes.
“There are no special rules. If you’re giving a child money to go in a junior ISA, you have the same seven‑year rule that you have from gifting money in any other way,” he said, adding that “there are lots of different gift allowances, and you can give money from income”.
Money placed into a junior ISA is therefore treated in the same way as any other financial gift.
If the person making the gift dies within seven years, the amount may be counted as part of their estate for inheritance tax purposes.
Inheritance tax is charged at 40 per cent on the value of an estate above the tax‑free threshold, which stands at £325,000.
An additional £175,000 allowance applies when passing on a main residence to direct descendants, and married couples or civil partners can combine their allowances to pass on up to £1million without inheritance tax.
Gifting remains one of the main ways to reduce inheritance tax liability.
Individuals can give away up to £3,000 each year without it being added to the value of their estate, and this allowance can be split across multiple recipients.
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People can also make multiple small gifts of up to £250 per person, provided these are given to different individuals.
There are further exemptions for weddings and civil partnerships, allowing parents to give up to £5,000, grandparents and great‑grandparents up to £2,500, and other individuals up to £1,000.
These allowances can be combined with the annual £3,000 exemption, enabling larger tax‑free gifts in certain circumstances.
Financial planners say junior ISAs are increasingly being used as part of wider inheritance tax strategies, particularly as frozen thresholds and upcoming pension changes bring more families into scope.
The accounts allow up to £9,000 a year to be contributed tax‑free, with money becoming the child’s asset at age 18.
Advisers note that using annual gifting allowances or regular contributions from surplus income can help reduce the size of an estate over time.
Junior ISAs are also being highlighted as a way for grandparents to pass on wealth efficiently as unused pension pots become subject to inheritance tax from 2027.
Wealth managers also note that JISAs are becoming a more prominent part of estate‑planning conversations as families look for long‑term, tax‑efficient ways to pass on assets.
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