IHT problem? Try combining these perks

Lots of grandparents want to give their grandchildren a leg-up in life - and plenty are also concerned about inheritance tax (IHT).

A Junior ISA, or JISA, can tackle both these issues at once. By using IHT gifting rules and JISAs in tandem, it is possible to build a £100,000 pot for your grandchild - and save your family thousands of pounds in tax along the way.

The JISA allowance currently stands at £9,000 a year. Once a parent or guardian has set up the account, any adult can contribute to it, including grandparents, other relatives and family friends. Investments grow free from income tax and capital gains tax, just like with an adult ISA.

At the same time, IHT gifting rules let you give away up to £3,000 each tax year without it being added to the value of your estate. This is known as your ‘annual exemption’ and it can go to one person or be split across several people. The maximum sum rises to £6,000 if you did not use your previous year’s allowance.

Regular JISA contributions

If you were to put your £3,000 annual exemption into a JISA, you could supercharge your grandchild's savings over the course of 18 years.

• Read: Junior ISA boom: which funds are parents buying?

With medium growth assets, your grandchild could have around £80,000 by the time they reach 18, from contributions of £54,000. This assumes annual investment growth of 5% and total service and fund fees of 0.75%. Note that Fidelity does not charge service fees on JISAs.

Crucially, the pot would also be outside your estate for IHT purposes, assuming you used your annual exemption each year.

If you aimed for higher growth - which would probably involve taking more risk - the potential returns are even greater: you could more than double your total investment of £54,000 to £112,000. This assumes annual investment growth of 8% minus fees. A low growth approach – which assumes growth of 2% minus fees – could end in a pot worth around £60,000.

Returns are not guaranteed, and your grandchild could get back less than you put in.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children.Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.