While gifts to grandchildren can cover anything from pocket money to driving lessons, the big strains are education and housing.

Students can build up large debts, so it could be a great idea to plan ahead and try to take some of the financial pressure off what should be one of the most exciting times in a young person’s life.

And today’s first-time buyers can expect to need a large deposit to enable them to buy a property.

The good news is that there are different ways to share your wealth that can cover a whole range of objectives and some have tax benefits.

What do your grandchildren need and when do they need it?

There’s a simple starting point after you’ve worked out what you can afford to give. What is it that your grandchildren actually need and when do they need it?

The best way to make gifts to your grandchildren will be different depending on:

how old they are, and

if you have concerns about handing over large sums at a young and impressionable age.

But making a gift at the earliest possible time means that any potential investment growth can play a big part in meeting a future cost.

Younger grandchildren

1. Junior ISA (JISA)

If your grandchild is under age 18, one option would be to save into their JISA. While you can’t open one on their behalf, you can pay into it within their annual limit, which is £9,000 for the 2020-21 tax year.

One advantage of the JISA is that they can’t dip into it until they reach 18 – but it is theirs to spend how they want to after that.

The money can be deposited in cash or invested in stocks or both. Any investment growth in a stocks and shares ISA is tax efficient while interest from a cash ISA is tax free.

If you put money aside for 18 years it could build into a considerable sum, though with any investment the value can go down as well as up. 

2. Child’s bank account

Alternatively, for smaller gifts a child’s bank account is practical and easy for family and friends to pay money into. And giving younger children access to their savings can help them manage their own money. However, bear in mind that there have been low rates for savers in recent years.

Older grandchildren

1. Lifetime ISA (LISA)

If your grandchild is 18 or older, a LISA could help them save for their first property.

They can open a LISA between the age of 18-40 and you can contribute to it – up to £4,000 a year which gets a 25% government bonus on top. There are a number of qualifying conditions which you can read about on Gov.uk but any money that isn’t used to get a foothold on the property ladder can also be spent when they are much older at age 60, which will top up their pension savings.

Would you like the reassurance of some control?

There may be an understandable concern about giving grandchildren too much too soon. You may want to have some control over where money is invested and when it is handed over. Making a gift into trust may ease the fears of giving large sums to grandchildren before they have sufficient financial maturity and provide the control many grandparents seek.

As a trustee, you can retain an element of control over the funds and how and when they are paid, while gifts made to the trust can reduce your estate for Inheritance Tax (IHT).

You can read more on the different types of trusts available on the government’s trust and taxes webpage. But this is complex and you should take financial advice.

Is inheritance tax a concern?

Giving money to your grandchildren may have an impact on how your estate is taxed. If Inheritance Tax is a concern you can find more information on the Government’s Inheritance Tax webpage.

Plan ahead for a brighter future for all

With a bit of careful thought and forward planning now there’s a lot you can do to make sure that the money you give goes as far as it can towards setting your loved ones up for a brighter future – while you’re still able to enjoy it alongside them.

These are just a few potential options to consider but will not be suitable for everyone, what is right for you will depend upon your own individual circumstances. Laws and tax rules may change. The value of tax benefits will depend upon individual circumstances. If you’re unsure about the best approach for you, please get in touch with us, we’d love to hear from you.

Important information

The information in this blog should not be regarded as financial advice. If you’re in any doubt about your options, you may wish to speak to a financial adviser. There will likely be a cost for this. All information is based on our understanding in April 2021.

1825 accepts no responsibility for information on external websites. These are provided for general information.