Tax-exempt savings plans are another way to save on behalf of a child, without paying tax on the money they receive.
Like junior ISAs, they’re designed for long-term saving but there are a few key differences that might help you choose between the two.
Key differences at a glance
| Junior ISA | Tax-Exempt Savings Plan for children | |
|---|---|---|
| Who can open one for a child? | Only a parent or legal guardian | Anyone |
| When can the child access the money? | When they turn 18 | At the end of the payment plan, which can be between 10 to 25 years |
| Who can pay in? | Anyone | The person who opened the TESP |
| How much can you pay in? | Up to £9,000 each tax year | Between £15 and £25 a month or between £165 and £270 a year |
| How often do you have to pay in? | You can set up a direct debit, but you can pay in anytime you’d like | Every month or every year, depending on your chosen payment plan |
| Can a child have one if they already have a child trust fund? | No | Yes |
| What is it best for? | Giving your child a lump sum on their 18th birthday | Giving a child you love, yours or someone else's, a lump sum on a special date of your choice |
What is a junior ISA?
Junior ISAs (JISAs) are long-term saving or investment accounts for children, where the money is locked-in for the child until they turn 18. They have to be opened by the parent or legal guardian of the child but anyone can pay in.
Your child can have a cash junior ISA, a stocks and shares junior ISA, or both. You can put up to £9,000 each tax year into junior ISAs in a child’s name.
What is a Tax Exempt Savings Plan for children?
Tax Exempt Savings Plans (TESPs) for children are investment accounts designed to help you save for a child’s future. Like the name suggests, there is no tax to pay on the money your child gets at the end of the payment plan.
Anyone can open a TESP for a child, you don’t need to be their legal guardian.
With a TESP, you choose how long the money stays invested (from 10 to 25 years) so you can decide how old the child needs to be before they get the money. You pay in a set amount regularly and can choose to pay either monthly (between £15 and £25 a month) or yearly (between £165 and £270 a year).
Why do people choose a children's TESP over a junior ISA?
You don’t have to be a parent to open a TESP
Only a parent or legal guardian can open a junior ISA in a child’s name, while anyone over the age of 18 can open a TESP for a child, even if that child already has a junior ISA.
So, a grandparent, aunt or uncle or even a generous family friend can give the child a gift specifically from them.
It doesn’t matter if they already have a child trust fund (or junior ISA)
If a child already has a child trust fund in their name, you can’t open a junior ISA for them (although you can transfer a child trust fund into a junior ISA).
But you can open a TESP even if the child has a child trust fund or even a junior ISA. The only thing that would stop you from opening one for them is if they already have the maximum amount being paid into TESPs in their name (£25 a month or £270 a year).
You get to choose how old the child is when they get the money
With a junior ISA, the child will automatically get access to the money when they turn 18 and you can’t change this.
With a TESP, you have the option to choose a later date. You could time the TESP to mature on their 21st or even 25th birthday, or time it for when they’re likely to finish higher education, if they choose to go.
Only the person who opened the TESP can pay in
Because you’re the only person who can pay money into the TESP, that gift will come specifically from you and you won’t need to share the credit!
With junior ISAs, anyone can pay in so the final amount will likely have come from several different people.
It’s a long-term commitment
You can pay up to £9,000 into junior ISAs each tax year (tax year runs April-April), you can pay in anytime you like as long as you don’t go over this limit.
With TESPs, you’re limited to paying in no more than £25 a month or £270 a year. But rather than putting money in only on birthdays or Christmas, you’re committing to always making this regular payment.
If you don’t keep making the payments, the money in the account will be taxed when it's withdrawn, which is a good incentive to keep going!
You have to set up a direct debit when you open the account and if you do miss any payments, you’ll have 13 months to make those payments with a lump sum.
The money is invested in the stock market
Arguably, you don’t have to open a TESP if you want to invest the money you’re saving for a child, as stocks and shares junior ISAs also invest in funds.
But, as all TESPs are investment products, it’s one less decision to make when opening an account! You’re also guaranteed a minimum amount that the child will receive at the end of the payment term.
The money you pay into a TESP is invested in a fund, which buys shares in a variety of different assets. The kind of funds you can choose from will depend on your child’s TESP provider, but you might find that the risk rating is lower than it is for junior ISA funds.
If you’re weighing up whether investing the money in the stock market is the right option for you, find out what the differences are between investing and growing money through interest in our earlier article.
So, am I best opening a Tax Exempt Savings Plan or a junior ISA for a child?
If you’re a parent or legal guardian and you’re happy for your child to access their money at 18, a junior ISA might be a good fit. The main advantage of a junior ISA over a Tax Exempt Savings Plan for children is you can pay more in - up £9,000 each tax year - and you’re not tied to a fixed payment plan.
But whether you’re the child’s parent or not, you could put money aside for them in a Tax Exempt Savings Plan instead, or as well as, paying into a junior ISA (if they have one).
As you choose how long you want to pay in for, you decide when the child receives their money. You could still choose 18, as long as this is at least 10 years away.
It’s worth noting that you don’t actually have to choose at all, as a child can have both a junior ISA and a Tax Exempt Savings Plan in their name.
What would you like to do next?
Find out more about junior ISAs
Our guides contain everything you need to know to about investing for your child's future in a junior ISA.
Transfer to OneFamily
Transferring a child trust fund or junior ISA from another provider to OneFamily is simple and we don't charge you to do so.
Open a OneFamily Junior ISA
Give your child more options when they reach 18 with our straightforward Junior ISA. Simply choose one of our three climate-focused funds to start investing on their behalf.
Our Junior ISA invests in stocks and shares. The value is therefore likely to go up and down over time.
This is normal for this type on investment, but it means there is a risk your child could get back less than has been paid in if they withdraw at a time when the value is lower.
