Being a grandparent is a unique and special role in a child’s life. It’s an opportunity to guide and grow, as well as provide security and roots. It’s a shocking fact that it now costs, on average, £231,843 to raise a child from birth to 21 in the UK. This figure is for a child attending a state school. It is calculated by the Centre for Economics and Business Research. Where do grandparents fit in to this?
Whilst this is alarming in itself, what’s more alarming is how much that figure is growing. In fact, that figure represents a growth of a staggering 65% since 2003 when analysts first started the calculations. In fact, 37% of parents rely on financial support from grandparents to help with the costs of taking care of children, according to the Grandparent Army Report by the International Longevity Centre UK.
Grandparents with the financial means to support their adult children, and their grandchildren, therefore are seeking ways in which to do this securely and appropriately. We hope this guide takes you through everything you need to know about finances and financial support as a grandparent.
Financial help in the here and now
It can be hard watching your adult children struggle – especially knowing they are having a harder financial time than the generations before them. The average cost of a house is £223,257. The average salary is £28,600. It’s not easy for modern parents.
Therefore, if you can, and if your adult children want it, it may make sense to give some financial support in the here and now. There are a number of different ways in which you can do this.
- Childcare: Enabling parents to go back to work can be a major way of providing financial support – both directly and indirectly. The price of childcare in the UK has increased dramatically in the last few years, with the Grandparent Army Report stating that it has increased 20% from 2011-2016.
Therefore if you have the time and ability, and live close enough, a powerful means of support can be childcare.
However, it’s important to bear some things in mind. Most notably, if you have stopped working to look after the grandchildren you should protect your National Insurance contributions. This is possible through the Specified Adult Childcare Credits. By applying for these you will protect your own state pension pot.
- Paying for Things: Another way that grandparents can help in the here and now is to pay for specific things for the grandchildren. It can be nice to know that you are directly supporting your grandchild in a specific way. For example, you may choose to pay for their music lessons or for them to attend a weekly gymnastics class. By paying for these directly you don’t need to worry about tax on gifts.
- One-Off Gifts: You can also help financially in the short-term by giving one-off gifts to help. You can take advantage of the Small Gifts Allowance to ensure this is done sensibly, for tax purposes. However, this isn’t particularly straight-forward, so do some research.
Generally speaking you may give your grandchildren Christmas and birthday gifts with no tax concerns at all. These are exempted gifts as long as the total amount you give away is within the £3,000 annual limit (although you can carry over any unused amount for one further year).
In addition, if your grandchild is getting married then you can give them £2500 tax free.
However, you do need to be aware of the 7 year rule. If you give away more than £325,000 in the 7 years before your death then Inheritance Tax will be levied. The amount of Inheritance Tax that will be due is calculated on a sliding scale called ‘taper relief’.
A word of caution: Only ever give what you can, and want, to give. You should not sacrifice your own financial security, or feel obliged to help.
Longer Term Financial Support by Grandparents
Still making sure you stick within the Inheritance Tax limits, you can also choose to support your grandchild for their future. This is more important than ever. This generation of children will likely be working longer than any generation before them. They are facing uncertainty over healthcare and pensions. University fees are something that will have a very real impact on their future. Not to mention the costs of being a first-time buyer. Therefore, if you have the ability, it makes sense to save for your grandchildren’s future.
Gifts made from your income, as long as you don’t need to reduce your normal standard of living to give them, can be immediately exempt from Inheritance Tax as long as they are part of a regular pattern of gifting – for example a monthly savings amount. There are a number of different ways in which you can do this depending on the amount you have available to gift, and what you want the money to be used for.
The following are some of the Shepherds Friendly savings products which grandparents can use for grandchildren:
- Junior ISA: A Junior ISA is a way of saving tax efficiently for your grandchildren from just £10 per month. The money in the ISA isn’t available until your grandchild reaches 18. Only parents can open the Junior ISA for their child, so you will need to liaise with the child’s parents to set up a Junior ISA, but once it is open, anybody can make contributions – but remember, there are strict limits on the total amount which can be paid in each year.
- Young Saver Plan: A Young Saver Plan can be opened by anyone for a child making it ideal for grandparents. Additionally, you can make monthly payments from as little as £7.50 per month. This plan is designed for the long-term, so can be valuable for helping with university fees or a deposit on a first home. What’s good is that there is an option to take 25% of the savings when the child reaches 11 which can help with the additional costs incurred when a child heads off to secondary school, such as uniform and a mobile phone.
- Junior Money Maker: If you have a greater amount of surplus income then it may be worth considering a Junior Money Maker. This too is a tax-efficient savings plan. You can save set amounts each month starting from £100 up to a maximum of £2400 per year. It is designed to be run for 10 years or more. This makes it worthwhile for helping your grandchild as they start out on adult life as they will receive a tax-free lump sum between the ages of 18 and 21. It also comes with a tax-free sickness benefit of up to £200 a week for the duration of the plan.
Helping your grandchildren is immensely important, and will help cement your relationships. Financial support, if you can afford it, can sit alongside practical support and your presence in order to provide your grandchildren with a great start in life.