Building for the Next Generation Part 1
Key takeaways
Gifting transfers ownership
Once assets are gifted, they generally belong to the child and the transfer is usually irrevocable.
Different structures offer different access
UTMAs, bare trusts and Junior ISAs generally give the child control at adulthood, while a Junior SIPP is designed for much longer-term retirement saving.
UK and US rules differ
The right structure can depend on where the child is taxed, with cross-border families needing to consider both UK and US implications.
Starting wealth transfers early can be a powerful planning tool. It may allow you to begin moving assets out of your estate, lock in current gifting rules and put capital to work for the next generation sooner. However, gifting does not simply mean moving money from one account to another. In many cases, ownership passes immediately to the child, even if an adult continues to manage the assets. Understanding that distinction is the first step to choosing the right structure.
In this three-part article series Tahir Mahmood and Cindy He look at:
- Understanding the structures
- Understanding the tax
- Finding the right fit
Understanding the structures
1. UTMA
A Uniform Transfers to Minors Act (UTMA) account is a custodial arrangement created under US state law. An adult, known as the custodian, manages investments on behalf of a child. The custodian can buy and sell investments, manage cash and make decisions relating to the account. However, despite exercising control, the custodian does not own the assets. Ownership belongs to the child from the moment the contribution is made.
In most cases the transfer is irrevocable, and the assets belong to the child. The child eventually gains full legal control but the age at which control passes depends on state law and is commonly 18 or 21, although some states permit a later age.
2. Bare Trust
A bare trust is often viewed as the closest UK equivalent of a UTMA. Under a bare trust, trustees hold legal title to assets on behalf of a beneficiary. The beneficiary has an immediate and absolute entitlement to both the capital and any income generated.
Where the beneficiary is a child, the trustees manage the assets until the child is legally capable of taking control.
As with a UTMA the child is the beneficial owner, and the trustees manage the assets.
- The arrangement is generally irrevocable.
- The child becomes entitled to control the assets when they reach adulthood.
Although the practical outcome can appear similar, the legal framework is entirely different. A UTMA arises under US state law, while a bare trust is governed by UK trust law.
3. Junior ISA
A Junior Individual Savings Account (JISA) is a UK tax-advantaged savings and investment account for an eligible child.
A parent or guardian with parental responsibility opens the account and manages it while the child is under 16, but the money belongs to the child. Anyone can contribute, and those contributions are gifts to the child that cannot ordinarily be repaid to the person who made them.
A JISA is a UK tax wrapper. Its benefits don’t automatically extend to other countries. If the child is a US citizen or otherwise subject to US tax, the income and gains may still be taxable in the US. We look at this in Part 2.
4. Junior SIPP
A Junior Self-Invested Personal Pension (SIPP) is a UK pension established for a child under the age 18, which may also be considered where the objective is to provide for the child’s retirement.
Contributions may be made by any person and are treated as irrevocable gifts, as with the other structures discussed above. The limit is £3,600 for the 2026/27 tax year including tax relief, meaning a net contribution of £2,880 and £720 of tax relief added by the pension provider.
Unlike funds held in a Junior ISA, bare trust or UTMA account, funds within a Junior SIPP do not become accessible when the child reaches adulthood. Instead, they remain subject to UK pension rules and generally cannot be accessed until the normal minimum pension age. This is currently 55 and will increase to 57 from 6 April 2028.
The key point
Many families focus on the investment opportunity and overlook the legal reality: the assets usually belong to the child once the gift is made. While parents, grandparents, trustees or custodians may retain control for a period, ownership has typically been transferred permanently, and the gift is generally irrevocable.
Ownership and control are often more important than the investment itself. Once assets have been gifted, families need to be comfortable that the child will ultimately have access to them.
In Part 2, we'll look at the tax implications, including the UK parental settlement rules and the US kiddie tax.
Glossary
UTMA: A US custodial account where an adult manages assets that legally belong to a child.
Bare Trust: A UK trust where the beneficiary has an absolute right to the assets and income.
Junior ISA (JISA): A UK tax-advantaged savings or investment account for children.
Junior SIPP: A UK pension for children, with funds generally inaccessible until pension age.
This material is provided for informational purposes only and does not constitute investment advice or a recommendation. The views expressed reflect current market conditions and are subject to change without notice.
All materials have been obtained from sources believed to be reliable, but their accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Past performance is not a reliable indicator of future results. The value of investments and the income derived from them may rise as well as fall, and investors may not get back the amount originally invested. Capital security is not guaranteed.
