October 01, 2026
Choosing how to invest for a child looks simple until you read the small print. Two routes dominate: the Junior ISA, a tax-free wrapper with a fixed annual allowance, and the bare trust, a legal arrangement that can hold almost anything for a child. They sound similar. They behave very differently the moment the child turns 18, and the tax rules can matter more to your returns than a decade of platform fees.
The core difference: ownership and control
Both structures put the money beyond your reach, but for different reasons. With a Junior ISA, the child owns the account from day one. A parent or guardian acts as the registered contact and manages it, but can never take the money back for themselves.
With a bare trust, a trustee holds the asset while the child has an absolute right to it. Once they reach the age of entitlement, they can demand the whole lot and you cannot refuse. That is the point most families miss: a bare trust is not a tool for keeping control. If you want money released at 25, or paid in stages, this is the wrong vehicle. You would need a different type of trust, with its own tax consequences — and that is a conversation for a solicitor.
How a Junior ISA works
Any child under 18 who lives in the UK and does not already hold a Child Trust Fund can have one. A parent or guardian with parental responsibility opens it, but anyone can pay in — grandparents, godparents, family friends.
There are two versions, cash and stocks and shares, and a child can hold both. The combined total across them must stay within one annual allowance, currently £9,000. Growth is free of UK income tax, dividend tax and capital gains tax, and there is normally nothing to report on a tax return.
At 18 the Junior ISA becomes an adult ISA, keeping its tax-free status without eating into the child's own annual allowance. Between 16 and 18, a child can also open a separate adult cash ISA — useful if they are saving for something specific, though the Junior ISA allowance is unaffected.
The trade-off is access. Except in very limited circumstances, no withdrawals before 18. And you are restricted to whatever investments the provider offers, usually funds, shares, investment trusts and exchange-traded funds.
How a bare trust works
In a bare trust, the child is the beneficiary and is absolutely entitled to the assets. You, as trustee, make the investment decisions until they are old enough to take over. Often the arrangement is simply a designation on a dealing account, though a formal deed gives you a cleaner paper trail.
It is the more flexible structure. You can hold individual shares, funds, property, or a mix assembled over years. The limitation is the age of access: in England and Wales the child can usually take control at 18, while in Scotland legal capacity arrives at 16. Rules differ across the UK, so confirm the detail before you commit.
One administrative point catches people out. Many bare trusts now need to be registered with HMRC's Trust Registration Service, even when no tax is due. It is a straightforward job, but it is a job.
Tax: where the two diverge
- Junior ISA: no income tax, dividend tax or capital gains tax, however large the pot grows. No reporting in the normal run of things.
- Bare trust: the child's own tax position applies. They have their own personal allowance and capital gains allowance, so a modest portfolio often produces no bill at all — but income and gains still need to be tracked.
- The parental £100 rule: if a gift from a parent generates more than £100 of income in a tax year, the whole amount is taxed on that parent rather than the child. Note that it applies to income, not to capital gains, which belong to the child. Gifts from grandparents, aunts, uncles and others are not caught by it.
- Inheritance tax: in both cases, money you give away counts as a gift. If you die within seven years, it may form part of your estate. Regular giving out of income can qualify for an exemption, so keep records.
Costs and admin compared
A Junior ISA is cheap to run: a platform charge, fund fees, no legal paperwork, and switching providers is straightforward if you become unhappy. A bare trust needs more. There may be a solicitor's fee to draft a deed, and fewer providers offer trust dealing accounts, so charges are often higher. You will also need to file a trust tax return if income or gains exceed the available allowances.
Which one fits your situation?
- Pick a Junior ISA if you want simplicity, tax-free growth and you are comfortable with the child taking the money at 18.
- Pick a bare trust if you need to hold something a Junior ISA cannot — a particular share, a property, or an investment held alongside other family members.
- Pick a bare trust if grandparents are the main funders. The £100 rule does not apply to them, so income can be taxed on the child instead.
- Look at other trust types if the money should stay partly under control past 18. Those are taxed differently and need professional advice.
There is no rule against using both. Plenty of families run a Junior ISA as the main engine and use a bare trust for a small holding of shares they want the child to inherit directly.
Practical steps to get started
- Decide the age at which you are happy for the child to take control. That single answer usually settles the question.
- Work out an amount you can sustain monthly. A regular £50 beats an ambitious lump sum you cannot repeat.
- Compare Junior ISA providers on total cost, not headline fees — platform charge plus fund charges plus any dealing fee.
- Keep a simple record of who gave what and when. It matters for the £100 rule and for any future tax questions.
- Review once a year. Check the investment still suits the time horizon and that charges have not crept up.
Tax rules and allowances change, and trusts carry legal detail that varies by where you live. If the amounts involved are significant, or you are setting up a trust rather than designating an account, take advice from a solicitor or a regulated financial adviser before you sign anything.
Photo: Dany Kurniawan / Pexels
