30th June 2021
Grandparents, Grandchildren, and Money
SHARING YOUR WEALTH DURING YOUR LIFETIME CAN MAKE A BIG DIFFERENCE
With all of us leading longer lives, you might be considering how you can help your family when it matters most. Sharing your wealth during your lifetime can make a big difference and bring you a lot of joy, particularly when helping younger generations who are dealing with rising house prices and university fees. After you’ve determined how much you can afford to give, there’s a simple starting point. What exactly do your grandchildren need, and when do they need it? The right way to give presents for your grandchildren can vary depending on how old they are, and whether you’re concerned about turning over a sizable amount of money to a child who may still be impressionable.
YOUNGER GRANDCHILDREN – JUNIOR INDIVIDUAL SAVINGS ACCOUNT (JISA)
If your grandchild is under the age of 18, you might put money into their JISA account. While you won’t be allowed to open one on their behalf, you will be able to donate up to their annual JISA limit, which is £9,000 for the 2021/22 tax year. The benefit of the JISA is that they 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 sizable amount, but the value of any investment will go up and down.
CHILD’S BANK ACCOUNT
Alternatively, 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.
LIFETIME INDIVIDUAL SAVINGS ACCOUNT (LISA)
If your grandchild is 18 or older, a LISA will be able to assist them in saving for their first home. If they turned 40 on or before 6 April 2017 they won’t be eligible. Only first-time buyers can use a LISA to buy property under age 60. For every £4 saved, the government will add £1 (worth up to £1,000 every tax year until they turn 50 years old). Up to £4,000 a year is eligible for the 25% bonus (they can add more but it won’t receive a government contribution). The bonus is paid every month, so they benefit from compound growth. They can invest in either cash or stocks and shares and this forms part of their overall annual ISA limit, which is £20,000 in tax year 2021/22.
WOULD YOU LIKE THE REASSURANCE OF SOME CONTROL?
It’s understandable to be concerned about giving too much money to grandchildren too young. You might like to have a say in where your money is spent and where it is spread. Putting a gift into trust will alleviate concerns over giving substantial sums to grandchildren before they have reached financial maturity and it can provide grandparents with the leverage they want. You maintain some control of the assets and to whom and where they are paid as a trustee, and gifts to the trust will lower the estate for IHT. Giving money to your grandchildren may eventually affect the way your estate is taxed, so it’s important to obtain professional advice before doing this.
PLAN AHEAD FOR A BRIGHTER FUTURE FOR ALL
There’s a lot grandparents can do today, with a little extra thinking and forward planning, to ensure that the money donated goes towards ensuring a brighter future for your loved ones – when you’re still alive to enjoy it.
GIVING YOUR LOVED ONES FINANCIAL GIFTS
If you’re unsure about the best approach for you, talk to us to discuss your options. Please contact us for more information.
Want to discuss your requirements? Woodward Markwell provide an initial complimentary financial healthcheck meeting to discuss your individual needs. Whether you are an individual or a business, an initial consultation with one of our experienced advisers is free of charge and without obligation.
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