Giving financial gifts to grandchildren

With Christmas coming, and family gatherings thin on the ground, many are looking for other ways to support family this year.

For grandparents, making a meaningful financial gift to their grandchildren is a popular way to help out in difficult times. However, working out the wider tax implications of doing so isn’t always easy.

Taking the right approach to giving away sums of money or other assets can stop you from handing too much of it to the taxman, so getting advice on what the rules are is sensible.

Here are some of the things you need to take into account.

What is the money for?

Depending on the age of your grandchildren and the amount of money you want to give them, you may have specific goals in mind for your gifted cash. You might want to help with university costs, a first car, or simply want to give it away so that it does not remain in your own estate for inheritance tax purposes.

Depending on what the money is for, there are different ways you could structure your gift. It is possible to put money into trust so that it is available when a child comes of age, or to top up a child’s existing Junior ISA, so that the money is not available until they are older but accumulates tax free.

You could even consider starting a pension for a young child, which is an exceptionally tax-efficient way to give money, since the government will add to the pot in tax relief as well, and could really help them with retirement savings when they are older.

A financial adviser can help explain all the different structures that are available and discuss which might work for your needs.

The IHT conundrum

Many of us are aware of inheritance tax, a 40 per cent tax that is levied on our estates after we die. One of the best ways to avoid paying too much of this tax is to give some of your money away earlier in life, and there are specific gifting rules around giving money to grandchildren, as well as more general exemptions that families can use to reduce the liability.

These exemptions come on top of the ‘nil rate band’, the first £325,000 of an individual’s estate (or £650,000 of a couple’s) that is not liable for inheritance tax, and the £175,000 per individual exemption for your main residence if it is passed to a family member.

A financial adviser will be able to talk you through these exemptions, which include annual extra gifts for grandchildren, as well as the seven-year rule, which means you can give away money to reduce your IHT bill and it won’t count as part of your estate as long as you live for seven years after giving it away.

They may also be able to advise you on the tax benefits of passing down your pension, which sits outside of your estate for inheritance tax purposes.

Keeping communication open

Thinking about how to structure your giving is an important part of financial planning, particularly now, with family situations moving and changing fast for members of all generations.

Talking with wider family, as well as financial experts, can help you to come up with a solution that works for you, will fund your future plans and can aid younger family members. Whether in person or virtually, chats around these subjects could be some of the most valuable conversations you can have this winter.

To speak to one of our friendly, expert advisers, get in touch today.