If you can afford to help out, there are a number of ways you can give money to your grandchildren
Rising house prices, poor wage growth and the increasing cost of education means the younger generation is facing an uphill battle when it comes to their finances. While research from the Resolution Foundation shows that millennials are set to receive more money from relatives than ever before, the bad news is they’ll be 61, on average, before they inherit it.
Financial help from grandparents can make a real difference to younger people’s lives, especially if they’re struggling to save money or get by. So, if you can afford it, what are the options when it comes to helping your grandchildren?
Putting money in a Junior ISA
If your grandchildren are under 18, then you could put money into a Junior ISA (JISA) on their behalf. Under the 2019/20 tax year rules, up to £4,368 can be put into a JISA each year, and there’s no tax payable on the earnings – the savings limit for JISAs can change from year to year, however, so it’s worth checking it online. Your grandchildren will be able to access the account once they turn 18.
Another benefit of a JISA is that when it matures, it automatically converts to an adult ISA, and the balance doesn’t count towards your grandchild’s ISA allowance.
Only a parent or legal guardian can open a JISA, so you’ll need to speak to your children to see if they have set up JISAs for your grandchildren that you can contribute to. It’s also important to be aware that the money you put in a JISA may be liable for inheritance tax (IHT) if you die within seven years of making the gift.
Buying Premium Bonds
Another tax efficient option is Premium Bonds. Prizes are tax-free and the money is 100% secured, as National Savings and Investment (NS&I) is backed by the Treasury. The drawback is your money won't earn interest – the only returns come from the monthly prize draw, and you can win between £25 and £1m.
Grandparents can buy Premium Bonds on behalf of their grandchildren. You can apply online or by post, and buy bonds in £25 increments.
Opening a pension
If you want to think more long-term, there's nothing to stop you setting up a pension for your grandchild. Children are allowed to have a pension, and anyone can contribute. The maximum you can put in a year is £2,880, and that will benefit from a 20% top up from the government.
The appeal of a pension is that the money has decades to grow. By the time your grandchildren can access the money – in their mid-50s – it should have grown into a substantial nest egg to help them in later life. The drawback is they can't use the money when they may need it most, to buy a house or fund their education.
Giving a financial gift
The simplest way to help out the younger generation is with a financial gift. You just need to be aware of the rules surrounding IHT.
You can give away up to £3,000 a year and it's IHT exempt. You can also gift unlimited amounts up to £250 – provided it isn't going to someone who has already benefitted from the £3,000 gifts. Furthermore, you can also give a grandchild £2,500 the year they get married (parents can give £5,000).
Gifts beyond this will still count as part of your estate if you die within seven years, so could be liable for IHT. If you want to gift cash to minimise your IHT bill, it's a good idea to speak to an independent financial adviser.
Setting up a trust
If you're expecting your estate to face a hefty IHT bill, then another option is to set up a trust. A 'discretionary trust' allows you to gift money to your grandchildren, with trustees (perhaps their parents) in charge of managing the assets and distributing them.
The money stops being part of your estate when you pay it into the trust, so it can help with IHT planning. But certain conditions have to be met and the rules around trusts can be quite complex, so it's worth seeking professional financial advice before setting one up.
Can you afford to give money to your grandchildren?
Retirement lasts a long time and you'll need the money to fund it, so it's important you give away only what you can truly afford.
Here are some things to consider:
- Work out what assets and total savings you have.
- Decide what kind of lifestyle you want to maintain.
- Look at your income and expenditure, draw up a budget and ensure you can make your money last.
- Put aside an emergency fund, in case of any unexpected costs.
- Consider things you may need to pay for in the future, like long-term care.
- If you're covered, decide how and how much you want to gift to your grandchildren.
More on thinking about retirement
Five ways to take your pension pot
The options for using your pension pot are more flexible than ever. But it’s important to understand how your decisions will affect your retirement income in the future.
Getting the insurance you need
As we get older, it gets harder and more expensive to buy things like car or travel insurance. Thankfully, most of us can get what we need, if we know where to look.
Understanding pension tax relief
Pension tax relief can seem like an alien concept, but it pays to make the most of it.
Supporting yourself and your family
Grandparents are playing a bigger role in supporting families financially, but it's important to take your future needs into account.
Helping your grandchildren financially
If you can afford to help out, there are a number of ways you can give money to your grandchildren.
Planning a funeral for you or your loved one
While it’s not something we like to think about, having funeral plans in place can help remove the worry of costs later on for both you and your loved ones.
The pros and cons of flexible retirement
Flexible retirement may sound like great option for people wanting to take things easier in later life, but it’s important to weigh up the practicalities.