If you are a grandparent, you are no doubt thinking about buying Christmas presents. Maybe your grandchildren have provided you with a helpful list. You may want to take the easy option and buy them the latest technology or toy that you know they want.
But maybe you want to think longer term and provide a gift that will benefit them for the future? You may want to enable them to buy their first car, support them through university or help them save for a house deposit. You could simply send them a sum of money, but it’s worth doing a little research before you do. The financial world has a number of ways for you to gift money to your grandchildren in a tax efficient way, either as a one off or over a period of time.
How much can you afford to gift to your grandchildren?
It’s critical to ensure that you have all your own financial needs covered as a priority. Once you have budgeted for your own short term and long term needs, you will arrive at a sum that you are happy to gift.
There are several options available, depending on whether you want to gift a one off sum or set up a more structured arrangement over several years.
One off gifts to reduce inheritance tax
If you are considering a one off gift, you will want to do this in such a way to legitimately minimise the inheritance tax liability for your family.
You may not be aware that you can gift up to £3,000 ‘annual allowance’ to whoever you like, tax-free. This amount won’t be counted as part of your estate for inheritance tax purposes. This could go to your grandchildren as a one off, or it could be something you do in each financial year.
Ways to save in the long term
There are a number of ways to save regularly over a longer term for your grandchildren.
These are a very popular product and are easy to add money to at any time.
Only a parent or direct guardian can open a junior ISA and the money is saved in your grandchild’s name. It is important to bear in mind that your money is locked away until they turn 18 – no one can access it, including you and your grandchild’s parents. However, anyone can pay into these accounts, up to a maximum of £9,000 each year. This is a very tax efficient way to save. Remember that the value of a Junior ISA or pension can fall as well as rise
You can open a Junior Self-Invested Personal Pension as soon as your grandchild is born. It’s protected from income tax and is usually exempt from inheritance tax, too.
Your grandchild won’t be able to access their pension pot until they are 10 years below the state pension age, so this is definitely only a long-term plan. As with the Junior ISA, the value of a pension can fall as well as rise.
Children’s savings accounts
For a more flexible way to save money for your grandchildren, a children’s savings account is an option. The money can be accessed at any time and the interest earned won’t be taxed as long as your grandchild doesn’t have an income of more than £12,570 in 2022/2023. However, interest rates on such accounts can be very low.
As you can see, there are very many ways for you to help your grandchildren financially, depending on your overall aims and financial situation. All of which will help them long after this year’s toys are gathering dust!
If you would like to explore some of these options, we’d love to talk to you about the best way to support your family. Please get in touch for an appointment.