Saving for a child in the UK involves navigating distinct tax-efficient routes. For the 2026/27 tax year, the Junior ISA (JISA) is a central option, offering a 9,000-pound annual contribution allowance. This account operates tax-free, allowing contributions from anyone, and children gain full access at 18. Other options include the Lifetime ISA for young adults aged 18 and over, and saving in a parent's name, which brings specific tax considerations like the 100-pound parental settlement rule. Understanding these frameworks is key to maximising savings for a child's future.

What is a Junior ISA and how does it work for 2026/27?

A Junior ISA is a UK tax-free savings or investment account specifically designed for children under the age of 18. A parent or legal guardian opens the account for a UK-resident child. Once opened, contributions can come from anyone – parents, grandparents, or friends.

The annual contribution allowance for a Junior ISA is 9,000 pounds for the 2026/27 tax year. This allowance refreshes every tax year on 6 April and unused allowance does not carry over. Critically, this 9,000-pound JISA allowance is separate from an adult's own 20,000-pound ISA allowance. This means a parent can contribute up to 29,000 pounds across both wrappers in a single tax year: their 20,000 pounds into an adult ISA and 9,000 pounds into a child's JISA.

Funds within a JISA grow free of UK income tax and capital gains tax. This tax-free status applies whether the JISA holds cash deposits or investments in the stock market.

Cash Junior ISA vs Stocks and Shares Junior ISA: Which approach is suitable?

A child can hold two types of Junior ISA: one Junior Cash ISA and one Junior Stocks and Shares ISA. The combined contributions across both types count towards the single 9,000-pound annual allowance.

A Junior Cash ISA holds money in a deposit form, earning interest at a fixed or variable rate. The balance does not fluctuate with market movements, making it a lower-risk option. Any interest earned within a Junior Cash ISA is tax-free.

A Junior Stocks and Shares ISA invests the balance into assets such as shares, exchange-traded funds, investment trusts, and managed funds. Returns depend on market performance, meaning the balance can fall as well as rise. Growth and dividends generated within a Junior Stocks and Shares ISA are also tax-free.

The choice between cash and stocks and shares often hinges on the saving horizon and risk appetite. For a long-term goal, such as savings from birth to age 18, historical data suggests the potential for higher returns from equities. For example, saving 9,000 pounds per year into a Junior Cash ISA earning 4 per cent interest from birth to age 18 could produce a balance of approximately 234,000 pounds. The same amount saved into a Junior Stocks and Shares ISA earning a long-run real return of 5 per cent could produce approximately 263,000 pounds. While past performance is not a guide to future returns and equity values fluctuate, this difference demonstrates the long-horizon compounding case for stocks and shares for young children.

How does the Lifetime ISA (LISA) fit into long-term savings for young adults?

The Lifetime ISA (LISA) is not an alternative to a Junior ISA for under-18s; it is a separate savings vehicle for young adults. Only UK residents aged 18 to 39 can open a LISA. This positions it as a natural next-stage option for an individual who has aged out of a JISA at 18.

A LISA has a 4,000-pound annual contribution allowance, which counts towards the overall 20,000-pound adult ISA allowance. The government pays a 25 per cent bonus on contributions. This bonus is capped at 1,000 pounds per tax year. Funds, including the government bonus, can be used towards purchasing a first home, provided the property value is up to 450,000 pounds, or for retirement from age 60.

Should you save in your name or your child's name: Navigating the 100-pound rule?

Saving in a parent's name in a non-ISA savings account is a third route for parents. This approach allows the parent to retain control of the money beyond the child's 18th birthday, deciding when and how to release the funds. The key trade-off is that any interest earned on these savings sits within the parent's tax position, rather than the child's.

A specific UK tax rule, known as the parental settlement rule, impacts this choice significantly. If a parent gifts money to their child and the resulting interest exceeds 100 pounds per child per parent per tax year, the excess interest is taxed as the parent's income. This 100-pound rule does not apply to gifts from grandparents or other family members. The rule is the principal reason why saving into a Junior ISA is generally more tax-efficient than simply gifting cash into a child's instant-access account for any significant parental contribution.

Premium Bonds offer another savings option. A parent, guardian, or grandparent can buy them for a child under 16. The minimum holding is 25 pounds, with a maximum of 50,000 pounds. Premium Bonds do not earn interest but enter monthly prize draws, and any prizes won are tax-free.

What happens to a Junior ISA at 16 and 18, and what about Child Trust Funds?

The journey of a Junior ISA has two key age milestones. From their 16th birthday, the child gains the right to manage their Junior ISA. However, they cannot withdraw any funds until their 18th birthday. At age 18, the Junior ISA automatically converts into an adult ISA, and the now-adult holder has full control, including the ability to withdraw funds.

Child Trust Funds (CTFs) are an older UK government-backed children's savings scheme. They were opened for children born between 1 September 2002 and 2 January 2011. While new CTFs cannot be opened for children born outside this range, existing CTFs continue to operate and can receive contributions up to the same 9,000-pound annual limit as Junior ISAs.

A significant advantage of CTFs is the ability to transfer balances into a Junior ISA at any time. A CTF-to-JISA transfer does not use the 9,000-pound JISA allowance for the year. This means a parent could transfer an existing CTF balance into a JISA and then add a further 9,000 pounds in new contributions within the same tax year, potentially totalling up to roughly 18,000 pounds of tax-efficient contributions. An estimated 670,000 UK Child Trust Funds remain unclaimed or untraced. Children who turned 18 between 2020 and 2026 with a CTF can locate theirs via gov.uk/child-trust-funds/find-a-child-trust-fund.

What should you do next?

Choosing the optimal savings route for a child requires considering their age, the desired level of control over the funds, and the long-term savings goals. The Junior ISA provides a robust, tax-free vehicle with a generous 9,000-pound annual allowance for 2026/27. For significant parental contributions, its tax efficiency often outweighs the complexities of the 100-pound parental settlement rule. As a child reaches adulthood, the Lifetime ISA emerges as a targeted option for first home or retirement savings. Reviewing these options against specific family circumstances helps inform the best approach.