Grandparents and Saving for Grandchildren: Tax-Efficient Ways to Help

Grandparents are often keen to help financially, but the most tax-efficient way to do it depends on whether the priority is minimising your own Inheritance Tax exposure, maximising growth for the grandchild, or simply finding the easiest practical route. Here’s how the main options compare.

Contributing directly to a Junior ISA or Junior SIPP

Grandparents can’t open a Junior ISA or Junior SIPP themselves (only a parent or legal guardian can), but can contribute directly to an already-open account (see our dedicated articles on both) - this is often the simplest practical route, and money contributed this way benefits from the same tax-free growth (JISA) or basic-rate tax relief (Junior SIPP) as parental contributions. Bear in mind the Junior SIPP limit is shared: up to £2,880 a year can be paid in per child from everyone combined - parents and grandparents together - topped up to £3,600 by tax relief.

There’s a further advantage to money coming from grandparents rather than parents: the rule that taxes a parent on interest over £100 a year from money they’ve given their own child doesn’t apply to grandparents’ gifts, so interest on a grandparent’s gift held outside a JISA is simply treated as the child’s own income, within their personal allowance.

Premium Bonds bought for a grandchild

Grandparents can buy NS&I Premium Bonds for a grandchild under 16 (see our dedicated article on how this works and what they’re worth) - a popular, simple gift that doesn’t require opening any account in the grandparent’s own name, with the bonds registered in the child’s name and managed by a parent or guardian until they’re old enough to take over.

Regular gifting from surplus income: an Inheritance Tax-efficient route

For grandparents specifically concerned about Inheritance Tax (see our Inheritance series article on the seven-year rule and gift exemptions), regular gifts from surplus income - rather than one-off gifts from capital - can be immediately exempt from IHT with no upper limit, provided they’re genuinely regular, come from income rather than capital, and don’t reduce the grandparent’s own standard of living. Committing to a regular monthly or annual contribution to a grandchild’s JISA can be structured to qualify for this exemption, though good record-keeping is essential to demonstrate this to HMRC later.

The £3,000 annual exemption and smaller gift allowances

Beyond regular income gifts, grandparents also have the standard £3,000 annual IHT exemption (shared across all their gifting, not specific to grandchildren, with any unused amount carried forward one tax year only - so up to £6,000) and the £250 small gifts exemption, which covers any number of people each tax year but can’t be used for someone who has also received part of your £3,000 annual exemption (see our Inheritance series article for the full detail on these allowances) - useful for grandparents making smaller, occasional gifts rather than large regular contributions.

Using trusts for larger sums

For grandparents wanting to make a more substantial gift while retaining some control over how and when it’s eventually accessed - rather than it becoming entirely the parents’ or child’s decision - a trust (see our Inheritance series dedicated article on when these genuinely help) can be a useful structure, though it introduces genuine ongoing administrative and tax complexity that should be weighed against the benefit for the specific sum involved.

Why coordinating with the parents matters

Since only a parent or guardian can open a JISA or Junior SIPP, and manages the account until the child is old enough to take over - worth knowing that the two accounts hand over control and access very differently once the child turns 18 - grandparents wanting to contribute significant or regular sums benefit from a clear conversation with the parents about which accounts already exist, how much room remains within the annual allowances, and how contributions should practically be made.

A simple decision guide

• Want the simplest possible gift, no ongoing commitment: Premium Bonds, or a one-off contribution to an existing JISA.
• Want to make regular contributions and reduce your own IHT exposure: consider structuring contributions as regular gifts from surplus income into the grandchild’s JISA.
• Want to make a substantial one-off gift with some ongoing control: consider a trust, with professional advice.
• Want the longest possible compounding effect: consider contributing to a Junior SIPP, if the parents have one open (see our dedicated article on why this matters so much for very young children).

The bottom line

There’s no single best way for grandparents to help financially - Premium Bonds and direct JISA contributions suit simple, occasional gifts, while regular gifting from surplus income offers genuine Inheritance Tax efficiency for grandparents wanting to make an ongoing commitment. Coordinating with the child’s parents ensures contributions actually reach the intended account efficiently, without duplicating effort or exceeding annual allowances unknowingly.