How best to support your grandchild’s financial future

If you want to help your grandchildren financially, make sure you share your money in a way that helps them as you intend, and is tax efficient too.

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What are the options?

The options depend on how much you can afford to give away; your grandchild’s age; and how much control you want to keep over the money.

ISAs are an excellent way to save, paying no tax on interest, dividends or capital gains. A Junior ISA (JISA) is for under-18s. It must be opened by the child’s parent or guardian and the annual limit is £9,000 for 2021/22. Your grandchild can access the money once they’re 18. Older grandchildren may already have a cash ISA or stocks & shares ISA, to which you could contribute.

A Lifetime ISA can be opened between ages 18-40. The annual limit is £4,000, plus a 25% government bonus. However, the money cannot be accessed without penalty until your grandchild buys their first home or reaches 60. Alternatively, you may be able to contribute to a grandchild’s pension – up to £2,880 each year, plus a 20% government top-up. Remember, investing carries risk. Shares can go down as well as up and you may get back less than was invested.

Consider setting up a trust

If you’d like more control over when your grandchild accesses the money you save for them, a trust is useful. Money held in trust is controlled by trustees, and you can be a trustee. So you can say how the money is invested and, depending on the type of trust, when and by how much your grandchild will benefit. Trusts can be complicated, so it’s wise to get professional advice.

Be mindful of inheritance tax

Giving away money can reduce your inheritance tax bill. For larger sums, you have to survive for seven years after you’ve made the gift. But you can make unlimited smaller gifts of £250. And each grandparent can gift up to £3,000 each year. If it’s the first time you’ve made gifts, you can use last year’s allowance too. Also, you can give a grandchild £2,500 as a wedding gift inheritance tax free.

Control your legacy

Stating clearly who you want to inherit from you in your Will makes things much easier for those you care about. You also need to leave a pension nomination to say who’s to get your pension. Together, your nomination and Will allow you to pass on as much as possible to the people you choose.

If you want more information about supporting your grandchild’s financial future and don’t already have a financial adviser, why not book a free, no-obligation call with an abrdn financial planner to see how we can help.