What investment options does a 16-year-old with a £40,000 inheritance have?
12 November 2024
Question by Helen
Hi,
My 16-year-old daughter has inherited £40,000 from her grandfather. She wants to invest it in stocks and shares and save it all until she is ready to buy a house, probably in about 10 years. She already has a Child Trust Fund so can't open a Junior ISA. She is not allowed an adult ISA and all other investments I have looked at require her to be 18 before she can invest. What can she invest in now? It seems so unfair that she wants to be sensible with the money but can't invest it anywhere. I was looking at Nutmeg but they require her to be 18 to open anything other than a JISA. When she is 18, she will move as much as she can into a LISA each year. Any advice you can give me would be much appreciated.
Thanks,
Helen
Answered by Holly Mackay
What a great gesture from her grandfather, lucky her!
As you say, I think it’s a bit odd that we don’t let 16 year olds invest more freely. But she does have some options. First, you can open her a Junior ISA if you transfer the Child Trust Fund over. Our Junior ISA tables will help you to choose one, and then you would typically need to open up an account and ask them to transfer the CTF in.
You say you have looked at Nutmeg – they would support you to do this. Check there are no exit fees from the CTF and also double-check with Nutmeg that they can support this. Once the Junior ISA is open you can pay in up to £9,000 a year. So you could pay £9,000 now and a further £9,000 on 6th April next year (the start of the new tax year).
If she is going to do this, don’t leave the £9,000 earmarked for the JISA in a current account – open up a good easy access account. Starling has a teen bank account paying 3.25% for example if she wants an OK rate with a decent app too. Yorkshire Building Society has a kids account paying 4.45% but you have to open the account by branch or post which will probably elicit a major eyeroll!
If you do allocate £18,000 to a Junior ISA in 2024 and 2025, then you have a surplus of £22,000 (assuming £9,000 x 2 for the Junior ISA both this tax year and the next). She could either invest this in a 2-year fixed bond (you could do this on her behalf although this might have tax implications, especially if you are a higher-rate taxpayer) and get an interest rate of about 4.5%, which is higher than current inflation so not too bad. Or if you haven’t used up your own £20,000 ISA allowance, you could invest the money into your ISA on her behalf. Or put the whole amount into a decent kids' cash account and then invest another £9,000 into the JISA in April 2026.
As you are planning a Lifetime ISA for her from the age of 18, bear in mind the annual limit of £4,000 here. We can all contribute up to £20,000 across all ISAs, with up to £4,000 in your Lifetime ISA. The government bonus doesn’t count towards the £4,000 Lifetime ISA limit. So after her 18th birthday, she could put £4,000 into a LISA, and also transfer £16,000 into an adult Stocks & Shares ISA. And then move the rest of the money over to the adult ISA the following tax year.
I hope this all makes sense!
