Giving money to children is one of the most generous things you can do — but the way you give it matters. A thoughtful gift can set a child up financially for life, while also helping you reduce your estate for inheritance tax purposes. Here are some of the most creative and effective ways to gift money to kids.
Junior ISA (JISA)
A Junior ISA is one of the best long-term gifts you can give a child. Contributions grow completely tax-free — no income tax on interest, no capital gains tax on growth. The annual allowance for 2026/27 is £9,000 per child. The money is locked away until the child turns 18, which means it cannot be spent on impulse. Parents or guardians open the account, but anyone — grandparents, aunts, uncles, family friends — can contribute.
Premium Bonds
Premium Bonds are a popular gift for children because they are backed by the government and offer the chance of tax-free prizes rather than interest. You can buy bonds in a child's name from as little as £25. There is no guaranteed return, but the money is completely safe and can be cashed in at any time. They make a memorable and tangible gift — especially if the child wins a prize.
Children's Savings Account
A dedicated children's savings account — separate from the family finances — gives a child a sense of ownership over their money. Many banks offer accounts that children can access and manage themselves from a young age, building financial confidence alongside their savings. Look for accounts with competitive interest rates and no withdrawal penalties.
Bare Trust
For larger gifts — particularly from grandparents — a bare trust can be an effective vehicle. You transfer money into the trust for the benefit of a named child. The child becomes absolutely entitled to the funds at age 18. The gift is a potentially exempt transfer for IHT purposes, meaning it falls out of your estate if you survive 7 years. A solicitor can set up a bare trust quickly and cost-effectively.
Contribute to School Fees
Paying school fees directly to the school is a gift of significant value. If the payments come from your regular surplus income — not from capital — they may qualify as normal expenditure out of income, which is fully exempt from inheritance tax with no upper limit. This is one of the most tax-efficient ways to gift money to children.
A Savings Jar with a Purpose
For younger children, a physical savings jar or piggy bank — topped up regularly with small amounts — teaches the habit of saving before they are old enough for a bank account. Pair it with a simple explanation of what the money is for (a bicycle, a holiday, university) and you are teaching financial responsibility at the same time.
Whatever method you choose, keep a record of the gifts you make. Your executors will need this information to complete the inheritance tax return after your death. A simple note of the date, amount, recipient, and purpose is all that is needed.
How PDA Law Can Help
If you are considering making larger gifts to children or grandchildren — or want to set up a trust — our wills and estates team can advise on the most tax-efficient approach for your circumstances. We can also help you document your gifting programme to protect the normal expenditure out of income exemption.