Gifting money to grandchildren: A how to guide

gifting money to grandchildren

Over the past few years grandparents have been steadily fed a diet of news headlines that spell out how they’re the luckiest generation. Their children and grandchildren are likely to fare worse in the financial stakes.

For most loving grandparents, with the financial means to do so, this means a heartfelt desire to give whatever they can to help their loved ones on their own future financial paths. In fact, a staggering £5.6 billion was gifted to adult grandchildren alone in 2014. However, knowing how to make the right gifting decisions can be confusing. Gifting money to grandchildren shouldn’t be so complicated it puts you off. Let’s make it simpler.

What, Who and Why?

Before considering the specific nature of any strategy for gifting money to grandchildren, you need to carefully consider some key points:

  • What do you have available to give?

Before deciding on the gifting strategy you need to have some idea of what you have available to give. In your generosity be careful to protect your own financial future.

  • Who do you want to give to?

Do you have one grandchild or seven? Are they babies, teens, or even adults?

  • Why do you want to gift money to your grandchildren?

There are a variety of reasons for giving that go beyond the simplistic view of giving out of ‘love’. Are you hoping to help with university fees or a first home? Would you like to know you helped out with the first car, or for education? Or do you simply want to give because you’d rather your grandchildren had it than the tax man? Identify your goals of giving.

Know the Rules

Once you’ve gained a good understanding of what you can afford to give, who your recipients will be, and why you want to gift money, then you consider what you can and can’t do.

First up, let’s debunk a common misconception. You are able to gift money to grandchildren as much money as you want without any upfront tax implications. This idea of a cap is not in fact true. However, there are a few things you need to look out for to ensure you and they don’t get stung in the long run.

  • Be Aware of Inheritance Tax: Two key points matter here: time and amount. If your total estate when you die is worth less than £325k then your grandchildren won’t find a nasty inheritance tax bill on what you have given. Additionally, as long as you’ve stayed within the ‘giving rules’ then anything you have gifted to your grandchildren up to 7 years before your death is ‘safe’ from the tax man. If however, you die within 7 years then these gifts will be Potentially Exempt Transfers (PET) and may have to be included in the estate. See here for further information.
  • Make Use of Your ‘Gift Allowance’: Each year you have an allowance of £3000 which you can gift without incurring Income Tax. You can carry this allowance over from one year to the next up to a total of £6000.
  • Think Small: Furthermore, you can gift to your grandchildren as many gifts of £250 as you like as long as the recipient hasn’t received the whole of your Gift Allowance.
  • Other Exemptions: Other exemptions of giving to grandchildren exist for specific purposes such as wedding gifts.

Ways of gifting money to grandchildren

Once you understand all of the above, you’re ready to choose the practicalities of how to gift money to your grandchildren. Look beyond poor return bank accounts. Some products to consider include:

  • Junior ISAs (JISA): usually run by banks and building societies, these are cash, stocks or shares saving plans for under 18’s. For current allowances on what you can pay in see here. At Shepherds Friendly Society, you can open the plan if you are the parent or legal guardian of the child, and we’ll accept contributions from anyone who wishes such as from family members and friends. Therefore, grandparents can’t open the plan but they can pay into it. Learn about our Junior ISA here. 
  • Young Saver Plan: this is Shepherd’s Friendly’s unique product that allows grandparents to open a plan for their grandchild to save for a minimum period of 10 years. It is tax-efficient and you can make monthly gifts of between £7.50 and £100. The beauty of this product is that we do the hard work of investing in a mix of assets for you, so that your grandchild gets the return on their investment with no income tax or capital gains tax on the growth of the savings. However, you should consider that, as this is an investment, returns are not guaranteed. Remember, when taking out any investment product your capital is at risk and you may get back less than you have put in. All references to taxation are to UK taxation and are based on Shepherds Friendly Society’s understanding of current legislation and H M Revenue and Customs practice which may change in the future. Click here for more information on the Young Saver Plan.
  • Stocks and Shares ISA: You may also want to consider saving for a grandchild’s future in a tax-efficient Stocks and Shares ISA. Each year you can save up to £20,000 in a Stocks & Shares ISA. The savings plan aims to pay an annual bonus to help your savings grow, although as with any investment this is not guaranteed. You can pay in lump sums as an when you please or set up a monthly Direct Debit payment starting from £30 or more a month, which you stop, start, raise or lower whenever you like to suit your circumstances. Historically investing has produced higher returns than saving in cash, and this means that there is more potential to grow your money in a stocks and shares ISA than a cash ISA. If you choose this approach, remember to read up on the rules on gifting money to children, and don’t forget, your capital is at risk.
  • Traditional Options: Traditional options for giving money to grandchildren include National Savings and Investments schemes such as Children’s Bonds and Premium Bonds.
  • Trust Funds: The ‘Child Trust Fund’ as such no longer exists, however old school trusts are still offered by some providers, and young people over 16 can now, until 2019, open Help to Buy ISA’s.

Children are the Future

Whatever you decide you can afford to give, at Shepherds Friendly we have a wealth of information that could help you to decide how best to gift money to grandchildren whilst making the most of your tax allowances, and ensuring your grandchildren get the very best start in life.

Shepherds Friendly

Please note: All information within Your Resource Centre is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given. The information reflects the view of the author and not that of Shepherds Friendly Society.

If you’re not sure what to do when making financial decisions then you should consult a financial adviser, who will likely charge for any advice that is given.

Most recent in learn:

search looking glass

Most popular in learn:

search looking glass