Most loving grandparents, with the financial means to do so, want to give whatever they can to help their loved ones on their own future financial paths. However, knowing how to make the right gifting decisions can be confusing.
Before considering any strategy for giving money to grandchildren, you need to carefully consider some key points:
- What do you have available to give? Before deciding on a gifting strategy, you need to have some idea of what you have available to give. In your generosity, be careful to protect your own financial future.
- Who do you want to give to? Do you have one grandchild or seven? Are they babies, teenagers, or even adults?
- Why do you want to gift money to your grandchildren? Are you hoping to help with university fees or a first home? Would you like to know you helped out with the first car, or for education? Or do you simply want to give because you’d rather your grandchildren had it than the tax man?
Know the Rules
Once you’ve gained a good understanding of what you can afford to give, who your recipients will be, and why you want to gift money, then you need to consider what you can and can’t do.
You are able to gift as much money as you want to grandchildren without any upfront tax implications. (Unless you are gifting assets with capital gains or disposing of assets with capital gains to generate the cash – could, in those instances, be CGT implications) However, there are a few things you need to look out for to ensure you and they don’t get stung in the long run.
- As long as you’ve stayed within the ‘giving rules’ then anything you have gifted to your grandchildren over 7 years before your death is ‘safe’ from the tax man. If however, you die within 7 years then these gifts, known as Potentially Exempt Transfers (PET), will have failed and will have to be included in the estate.
- Each year you have an allowance of £3000 which you can gift and this is immediately outside of your estate for inheritance tax. You can carry last year’s allowance over to the current year if unused as long as the current year’s allowance is also being fully used – this can mean £6000 per person is available.
- You can gift to your grandchildren as many gifts of £250 per grandchild as you like as long as the recipient hasn’t received other gifts from you.
- Other exemptions of giving to grandchildren exist for specific purposes such as wedding gifts.
Ways of gifting money to grandchildren
Once you understand all of the above, you’re ready to choose how to gift money to your grandchildren. Look beyond bank accounts. Some products to consider include:
- Junior ISAs These are cash, stocks or shares savings plans for under 18’s. You can open the plan if you are the parent or legal guardian of the child, therefore, grandparents can’t open the plan but they can pay into it. If the child has an Child Trust fund then this can now be transferred to a junior a ISA and would need to be done first before anything else can be added to a junior ISA as a child cannot hold both.
- You may also want to consider saving for a grandchild’s future in a tax-efficient Stocks & Shares ISA. Each year you can save up to £20,000 in a Stocks & Shares ISA. You can pay in lump sums or on a monthly basis, which you stop, start, increase or lower whenever you like to suit your circumstances. Historically investing has produced higher returns than saving in cash, and this means that there is more potential to grow your money in a stocks and shares ISA than a cash ISA. These funds aren’t treated as having been gifted to your grandchild until the point they are withdrawn from the ISA and paid over to the grandchild therefore they will remain as part of your estate until gifted (and potentially for 7 years afterwards depending on the value).
- Traditional options for giving money to grandchildren include National Savings and Investments schemes such as Premium Bonds.
Children are the Future
Whatever you decide you can afford to give, at Berry & Oak we have a wealth of information that could help you to decide how best to gift money to grandchildren whilst making the most of your tax allowances, and ensuring your grandchildren get the very best start in life.
*The value of investments can fall as well as rise. You may not get back what you invest.