How To Give Cash To Grandchildren And Minimise Tax

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Kind-hearted grandparents are keen to find ways to help their grandchildren financially.

Their plans range from gifting property and large sums of money to tax effective savings and topping up pocket money.

But with so many tax and financial pitfalls, what is the best way to gift cash to grandchildren?

Like most things financial, there is no one-size-fits-all answer that suits every family, but here are some of the best suggestions of what to consider for British grandparents.

Three ways to invest for grandchildren

  • Junior ISA – Useful for expat grandparents as although the account must be opened by a parent or guardian, anyone can top up Junior ISA savings, even if they live overseas.

The annual savings limit is £4,368, but the fund grows free of income tax and capital gains tax, meaning the child pays nothing when they have access to the cash when they turn 18 years old.

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Over a full 18-year term, grand parents and other relatives can salt away £78,6224 plus interest and pay no tax on the growth.

  • Junior SIPP – Like a Junior ISA but with different tax-efficient contribution rules.

Again, must be set up by a parent or guardian and anyone can contribute, including expat grandparents.

The annual savings limit is £2,880 a year, which is topped by 20% tax relief to £3,600.

A Junior SIPP fund is locked until the child reaches 57 years old, when the cash becomes subject to pension freedom rules.

  • Junior Investment Account – Grandparents can open these accounts and pay in money or investments.

The account is a share account set up as a barre trust, which allows a parent or other trustee to hold assets for the child.

Probably not worth thinking about unless estate planning is involved.

Helping grandchildren financially is just one aspect of gifting money – minimising inheritance tax is another

Getting around IHT

Every British taxpayers has a £3,000 annual allowance of inheritance tax exempted gifts – and for the first year of giving cash, the previous year’s allowance can be brought forward, making the year one exemption £6,000.

Other IHT exempted gifts include:

  • Wedding or civil ceremony gifts of up to £2,500 for a grandchild or great-grandchild
  • Payments to help with another person’s living costs, such a grandchild under 18

Grandparents can double up on gifts to a grandchild, for instance giving them £3,000 cash plus £2,500 towards wedding costs, without any tax implications.

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