If you can afford to, there are a number of ways you can give money to your grandchildren. With rising house prices and the increasing cost of education means the younger generation is facing an uphill battle financially.
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 2020/21 tax year rules, up to £9,000 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.
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 from 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.
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 you 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.
