Younger generations face an increasingly challenging economic environment, making it harder to get a strong start in life and work toward meaningful goals.
Amid mounting financial pressures, such as rising house prices, economic stagnation, and persistent inflation, your support may be needed more than ever.
However, before offering financial help to your children or grandchildren, it’s important to consider the most effective ways to do so, which may not always mean simply giving them money directly. That way, you can ensure your support remains tax-efficient and doesn’t compromise your own financial security.
Read on to discover five smart ways to financially support your children or grandchildren.
1. Contribute to their pension
Pensions UK reports that 78% of those aged 18 to 24 and 43% of 25 to 34-year-olds are not saving for retirement. Many younger people are too focused on saving for their first home to be able to put more aside for their retirement.
Yet, while retirement may seem a long way off for younger adults, early pension contributions can make a considerable difference to long-term financial security and are one of the most efficient ways to build wealth over time.
You can contribute to another adult’s pension, and they’ll still receive tax relief on contributions up to their Annual Allowance. For 2025/26, this allowance is the lower of £60,000 or 100% of their earnings.
It’s also possible to contribute to a child’s pension. If they’re under 18, contributions of up to £2,880 a year qualify for basic-rate tax relief, bringing the total to £3,600.
Making regular contributions to your child’s pension can provide them with a good head start and help instil positive, long-term saving habits from an early age.
2. Set up a trust
A trust is a legal arrangement that allows you to set aside assets for your child or grandchild to use in the future.
Trusts give you control over how and when the funds are accessed. For example, you could stipulate that your child or grandchild can only access the money once they’ve finished university or reached a certain age.
This approach helps ensure your loved one uses the funds responsibly. It also offers potential Inheritance Tax (IHT) benefits, as assets placed in a trust are typically no longer considered part of your estate.
Because trusts can be complex, it’s a good idea to speak to a financial planner to explore the options available to you.
3. Make use of their Junior ISA allowance
Junior ISAs (JISAs) allow you to put money aside for children under 18 in their name, and any returns or withdrawals are tax-free.
As of 2025/26, you can pay in up to £9,000 each year. The named child can typically take control of the account at the age of 16 and access the funds once they reach 18.
There are two forms of JISA:
- Cash JISAs allow you to save money for your children, much like a regular savings account, but with the added tax benefits.
- Stocks and Shares JISAs allow you to invest on your child’s behalf, with no tax due on the returns.
Cash JISAs offer guaranteed returns and security, while Stocks and Shares JISAs may be better for long-term growth.
However, you don’t have to choose between one or the other, and you could open both accounts and split the JISA allowance across them as you like.
The funds you save in a JISA could give your child or grandchild a helpful boost when they start their adult lives.
Indeed, a report in the Guardian notes that if you invest £50 a month from birth, you would leave your child or grandchild with a pot worth £18,050 by age 18 (assuming 5% annual growth).
4. Give them money to put into a Lifetime ISA
According to the Independent, 52% of first-time buyers in 2024 received financial help from relatives, totalling £9.6 billion in gifts and loans. While you may be tempted to give your child or grandchild money directly to support their property purchase, there may be other, more efficient ways to help.
For instance, Lifetime ISAs (LISA) are available to anyone aged 18 to 39 and can be used to save for a first home deposit or retirement.
While you can’t contribute directly to someone else’s LISA, you can gift them money, which they can then contribute themselves.
Your child or grandchild can save up to £4,000 per tax year in a LISA, counting toward their overall ISA allowance (£20,000 in 2024/25). The government adds a 25% bonus, giving up to £1,000 extra each year.
It’s important to note that LISA withdrawals have restrictions. If they don’t use the money to help buy their first home, it must remain invested until they are 60. If they withdraw outside of these two situations, they will face a 25% penalty.
5. Give them gifts
Gifting your wealth is one of the simplest ways to support your children while reducing the value of your estate for IHT purposes.
The annual gifting exemption allows you to make IHT-free gifts each year. In 2025/26, this is up to £3,000, which can be carried forward for one year if unused. Couples can also combine their allowances, meaning they can potentially give up to £12,000 in a single year if they also carry forward the previous year’s allowance.
Additional gifting allowances include:
- Wedding gifts of up to £5,000, depending on your relationship to the married couple
- Small gifts up to £250, provided they’re not part of a larger gift
- Regular gifts from income, as long as they don’t affect your standard of living.
These options allow you to support your children or grandchildren with immediate funds while reducing the size of your estate.
Remember, any cash you gift beyond these allowances could be liable for IHT if you die within seven years of gifting it.
Setting boundaries can help protect your long-term financial security
Supporting your younger loved ones is admirable, but it’s important to protect your own financial security. Using retirement savings or taking on debt to help them could create long-term risks for both you and your family.
So, it’s important to set clear boundaries. Be transparent about what you can afford and whether the support is a gift or a loan.
Get in touch
Our team of independent financial advisers in Lewes is here to support you in exploring tax-efficient strategies for supporting your family while staying on track with your own goals. We can also work with your children or grandchildren to help them set goals and build their financial security.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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.
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.
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.