Parents/legal guardians can set up a pension for a child which will pass to them at age 18. Anyone can contribute to a child’s pension to a maximum of £2,880 a year, which the government tops up to £3,600 due to tax relief (2018/19).
This is a great way to ensure the beneficiary has financial security for their entire life, and encourage children to prioritise pensions from an early age.
A pension remains one of the most tax-efficient vehicles available. It could be a way of using your exempted gift annual allowance to reduce eventual IHT.
Options include a Junior Sipp or a Stakeholder pension.
Anyone born between 1 September 2002 and 2 January 2011 had a Child Trust Fund automatically opened for them by the Government. Since April 2015, these can be converted into most junior ISAs, which offer better rates.