Can I Open an ISA for Someone Else?
Explore the possibilities and limitations of setting up or funding an ISA for someone else, covering legalities, contributions, and tax implications.
Individual Savings Accounts (ISAs) are a popular way for individuals in the UK to save and invest money without paying tax on the income or capital gains generated within the account. Understanding the rules surrounding who can open and contribute to an ISA is important for anyone considering using these tax-efficient wrappers.
Opening an Adult ISA for Someone Else
An adult ISA must be opened and operated by the individual whose name it is in. The account holder must be a UK resident for tax purposes, or a Crown employee serving overseas, and at least 18 years old. For a Cash ISA, the minimum age is 16.
The funds contributed to an ISA must originate from the account holder.
A limited exception exists where a Power of Attorney (POA) has been granted. In such cases, the attorney can operate an existing ISA on behalf of the donor (the person who granted the POA). However, the ISA remains legally the property of the donor, and all contributions must still be made within the donor’s ISA allowance.
Opening a Junior ISA for a Child
Junior ISAs (JISAs) offer a specific pathway for adults to save for a child. A JISA can be opened by a parent or legal guardian for an eligible child under the age of 18. The child must be a UK resident and not already have a Child Trust Fund.
Once a JISA is established, anyone can contribute money to it, including grandparents, other family members, or friends. All contributions count towards the child’s annual JISA allowance, which is £9,000 for the 2024-2025 tax year.
The funds held within a JISA belong to the child, but they cannot access the money until they turn 18. At age 18, the JISA automatically converts into an adult ISA, and the now-adult child gains full access to the funds. This structure provides a tax-efficient way for long-term savings for a child’s future.
Gifting Funds for an ISA
While you cannot open or directly contribute to another adult’s ISA, you can provide them with funds which they can then subscribe into their own account. The recipient must meet all eligibility criteria, including age and residency requirements, to open and maintain their ISA.
The gifted funds must be used by the recipient to fund their ISA within their annual ISA allowance. For the 2024-2025 tax year, the adult ISA allowance is £20,000. It is the recipient’s responsibility to ensure they do not exceed this limit with their own contributions and any gifted funds they choose to subscribe.
Inheritance Tax Implications of Gifted Funds
Gifting funds for someone else’s ISA can have Inheritance Tax (IHT) implications for the donor. Gifts made during a person’s lifetime are generally considered “Potentially Exempt Transfers” (PETs). A PET becomes fully exempt from IHT if the donor survives for seven years after making the gift.
If the donor dies within seven years, the gift may become subject to IHT, with the amount of tax depending on a sliding scale known as “taper relief” if death occurs between three and seven years after the gift.
There are also specific allowances that can reduce or eliminate IHT liability on gifts. Each individual has an annual gift allowance of £3,000, which can be carried forward for one year if unused. Additionally, small gift allowances of up to £250 per person per tax year can be made to any number of individuals without IHT implications, provided no other exemption is used on that recipient. Gifts made above these allowances, and within the seven-year period, might be added back into the donor’s estate for IHT calculations.