Making a difference to the younger generation
Being a grandparent is a very special time of life, and one that comes with many opportunities to make a difference to the generations that come after.
Younger people are dealing with an upsurge in financial pressures, caused by high house prices, university fees and inflation. One of the ways that grandparents can help out is by staggering any financial gifts to their families to ensure they make the greatest possible impact.
The right way to give presents for your grandchildren can vary depending on how old they are, and whether one is concerned about turning over a sizeable amount of money to a child who may still be impressionable.
Here are some of the strategies to consider:
For younger children
A Junior ISA
Grandparents can put money into their grandchildren’s Junior Individual Savings Accounts, or ISAs. These products allow money to be invested or saved towards a child’s future, however, can only be opened by a child’s parents or guardians.
Once they are open though, anyone can contribute, up to an annual limit, which is £9,000 for the 2021/22 tax year. With the JISA, grandchildren can’t touch the money until they turn 18 – after that, it’s theirs to use as they choose. The funds may be stored in cash, invested in securities, or a mixture of both.
Investment growth is tax-efficient in a Stocks & Shares ISA, while a Cash ISA’s interest is tax-free. If you put money away for 18 years, it might grow into a sizeable amount, but the value of any investment will go up and down.
A child’s bank account
For savings that a grandchild might want to access more readily, a child’s savings account is a convenient and easy place for families and friends to deposit money for smaller presents.
Keep in mind, though, that savers’ rates have been poor in recent years and over time, inflation can reduce the value of the savings, because prices typically go up in the future.
For older grandchildren
A Lisa (Lifetime Individual Savings Account)
For grandchildren of 18 or older, getting on the housing ladder is likely to be a priority. Contributing to a LISA will help them to save for their first home.
The proceeds in a LISA can be used only to buy a first property, or for retirement far later, and is only available to those under 40.
The main attraction of the LISA is the government bonus. For every £4 saved, the government will add £1 (worth up to £1,000 every tax year until the individual turns 50 years old). Up to £4,000 a year is eligible for the 25 per cent bonus.
The bonus is paid every month, so the accountholder benefits from compound growth. A LISA can be invested in cash or stocks and shares and forms part of an individual’s overall annual ISA limit, which is £20,000 in the tax year 2021/22.
A trust for any age
It’s understandable to be concerned about giving too much money to grandchildren too young.
Some grandparents might like to have a say in where their money is spent and how it is spread. Putting a gift into trust can alleviate concerns over giving substantial sums to grandchildren before they have reached financial maturity and it can provide grandparents the control they want.
With a trust, grandparents can maintain some control of the assets and to whom and where they are paid as a trustee.
Making gifts to the trust can also lower the value of a grandparent’s estate for inheritance tax purposes.
Giving money to grandchildren may eventually affect the way an estate is taxed, so it’s important to obtain professional advice before doing this.