Since taking office, the Labour government has announced several changes to Inheritance Tax (IHT), which could lead to families paying more in the future.
As such, it’s more important than ever to review your estate plan and think about how you will pass wealth to the next generation tax-efficiently. To do this effectively, you need to understand the upcoming changes to IHT and the various tools you could use to shield funds from tax when passing them to loved ones.
Junior ISAs (JISAs) are one such tool, and they have become more popular in recent years due to tax increases.
Read on to learn everything you need to know about JISAs and IHT planning.
Forecasts suggest the government will raise £14.5 billion from Inheritance Tax by 2030/31
To understand why IHT receipts are rising, it’s important to consider how the tax is calculated.
When you pass away, the executor of your will adds up the total value of your taxable estate, including your:
- Properties
- Cash savings
- Investments
- ISAs
- Valuable personal possessions, including jewellery, furniture, or artwork.
Any portion of your estate that exceeds thresholds called the “nil-rate bands” is subject to IHT at a rate of 40%.
As of 2025/26, you have a:
- Nil-rate band of £325,000
- Residence nil-rate band of up to £175,000 when you pass your main home to a direct descendant, such as a child or grandchild.
You can also pass your entire estate to a spouse or civil partner without IHT, and they will inherit your unused nil-rate bands. This means that a couple may be able to pass on up to £1 million between them.
Crucially, the nil-rate band has been frozen at its current level since 2009, and the residence nil-rate band hasn’t increased since 2021.
In this time, the value of your estate may have risen considerably as house prices have increased and your savings and investments have grown. This means that a larger portion of your estate could be subject to IHT, and many families face this issue.
According to the Office for Budget Responsibility (OBR), IHT receipts are predicted to be £8.3 billion for 2024/25, but as thresholds remain frozen, this could increase to £14.5 billion by 2030/31.
Your pensions will no longer be exempt from Inheritance Tax after April 2027
Currently, your pensions don’t count as part of your estate for IHT purposes. This makes them an excellent tool for passing wealth to the next generation tax-efficiently.
Unfortunately, in her 2024 Budget, chancellor Rachel Reeves announced that this exemption would end from April 2027 onwards.
The UK government estimates that by 2027/28, an additional 10,500 families could pay IHT because of this change, and those who were already likely to face an IHT bill could pay more.
As such, there is increased interest in strategies to mitigate IHT.
Paying into a Junior ISA could be a tax-efficient way to pass wealth to your children
Since the chancellor announced that pensions would be subject to IHT in the future, many people are opting for JISAs as an alternative way to pass wealth to their children or grandchildren.
According to MoneyWeek, October 2025 was the biggest ever month for people opening new JISAs with Hargreaves Lansdown. Additionally, four out of the top five months for new JISAs fell in 2025.
This is because these accounts offer a tax-efficient way to build wealth for your children or grandchildren. You can open one on behalf of a child and contribute £9,000 each year. This allowance is separate from your adult ISA allowance.
You can choose a Junior Cash ISA or invest through a Junior Stocks and Shares ISA. There is no Income Tax, Capital Gains Tax (CGT), or Dividend Tax to pay on interest and investment growth in a JISA.
Once the child turns 16, they take control of the account. When they’re 18, it transfers to an adult ISA, and they can withdraw the funds. There is no Income Tax to pay on the withdrawals.
As such, JISAs are an incredibly tax-efficient way to build wealth on behalf of a child or grandchild.
It’s important to consider Inheritance Tax gifting rules when contributing to a Junior ISA
Any payments into a JISA are considered gifts for IHT purposes, and a specific set of rules applies.
The first £3,000 you gift each year – your gifting annual allowance – is immediately free from IHT. This is an individual allowance, so a couple can give £6,000 between them.
Any further gifts may be IHT-free, but only if you live for seven years after giving the gift. There are several other specific IHT gifting allowances and exemptions you might benefit from, too. We can help you explore the various tax-efficient ways you can contribute to a JISA on behalf of a child.
By making regular payments into a JISA, you can slowly transfer your estate to the next generation and potentially reduce the IHT your family pays. They will also benefit from tax-free growth on those funds as they are held in a tax wrapper.
Get in touch
We can help you explore IHT planning strategies in light of the upcoming changes.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.