Should I pay into a Jisa or a junior Sipp for my grandchildren?

I want to pass down wealth to my grandchildren. I’d like to use either a junior Isa or a junior Sipp. Which is the best option and why?

Daniel Hough, financial planner at wealth manager RBC Brewin Dolphin, says passing wealth to family members can be a tricky process, but junior Isas (Jisas) and junior Sipps (self-invested personal pensions) are two of the best ways of doing so in a tax-efficient way.

Many people assume Jisas are the best way to contribute to a grandchild’s future, but junior Sipps can be very useful too in the right circumstances. The decision between the two comes down down to how accessible you want the money to be. 

Jisas and junior Sipps are liable to different tax regimes. Jisa growth or withdrawals are tax free but they are included in a recipient’s estate for inheritance tax. However, under current legislation junior Sipps are subject to a tax-free lump sum of 25 per cent with the remainder subject to income tax at the individual’s marginal rate. But they are usually exempt from inheritance tax while the pension is invested.

With a Jisa, the child will have access to the pot of cash at 18 years old, while with a junior Sipp they won’t be able to use it until they are 55, increasing to 57 in 2028, and that may well rise further if the state pension age continues to go up, which seems inevitable. 

That is obviously a big difference in age and will, in all likelihood, mean they will end up using the money in very different ways. When they are younger, that may mean spending the money in ways you don’t approve of. In a previous role, I received lots of calls from parents about what their children were using their money for once they were able to access their Jisas and junior savings accounts.  

The other big consideration on this point is whether you want to see them enjoy the money — if you are a grandparent, you are not realistically going to be able to do that if you only contribute to a junior Sipp. It can be incredibly rewarding to see grandchildren enjoy the fruits of your hard work over the years, so it’s worth bearing this in mind. 

Another point to consider is the annual limits on both. With a Jisa, you can contribute up to £9,000 every tax year, which is a very generous allowance and allows you to build up a significant sum for your grandchild by the time they reach 18.

Junior Sipps have a lower limit at £2,880 a year, but this grosses up to £3,600 with the government’s contribution — essentially a free £720 through tax relief, which can add up to a large amount when given decades to compound. More generally, the pot itself will also have a much longer period of time to grow, which can make a huge difference to your grandchild’s eventual retirement. 

The best answer may lie in a combination of the two. If you have £5,000 you want to gift to a grandchild in a given year, you could use up the Junior Sipp allowance and then contribute the rest to a Jisa. That way, they can use some of it when they are 18 on something like a big trip abroad and will still have the long-term savings there for when they are older. 

I promised to leave a property to my daughter. Can I change my mind?

I promised to leave a property to my daughter, but now I’ve changed my mind. Do I have to go through with my promise? 

Charlotte Coyle, family lawyer at Freeths, says if you make a promise that somebody has reasonably relied on, to their detriment, and it becomes unfair to go back on that promise this can create an enforceable legal right known as a proprietary estoppel — a personal bar under Scottish law — where a promise or assurance has been made but not carried out. 

Sometimes you make a plan with the best intentions but your circumstances change and you want to consider alternatives. For example, in your case, you promised to leave a property to your daughter but you may have since retired and want to sell the property to supplement your income, or pay unexpected care fees. Or you might be getting divorced or have fallen out with your daughter. At what point is it too late to change your mind? 

This will depend on the strength of the promises you made, what detriment she might have suffered, any benefits she received along the way (for example, was she allowed to live there for a reduced rent), or whether anything more is needed to rebalance the equitable scales.

In a court case in 2023, the father of a farming family promised his daughter, Rebecca, a farmhouse on the family estate (at that time, legally owned by him). The property was a dilapidated barn, which was later converted into Rebecca’s “forever home”. Rebecca paid for most of the renovation costs of around £200,000 and paid £700 in rent each month, which her father used to settle a mortgage on the property.  

The property was later transferred into joint names of both parents, while Rebecca continued to live there. 

Rebecca’s parents filed for divorce in 2018. Rebecca made an application seeking a declaration that the property and equestrian facilities belonged to her on the grounds of proprietary estoppel. Rebecca’s father supported her application but her mother opposed it since she wanted to use the facilities to run a livery yard business.

The judge held that the transfer of the property into her parents’ joint names and their change in circumstances did not override the promises made to Rebecca, so it was unfair for her parents to go back on those promises. Rebecca’s claim was successful. 

If you have made assurances, even if your circumstances have changed, it could be too late to change your mind if that promise has already been relied on. Be careful of declaring your intentions too early. You may well be held to it.  

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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