How to gift money to grandchildren

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.

One of life’s greatest pleasures is seeing your grandchildren grow up. As they mature, however, the weight of responsibility grows – especially regarding money management. As a grandparent, how can you effectively give a “leg up” to the youngest generation in your family?

Below, our Grantham financial advisers offer a short guide to helping grandchildren with their finances. This encompasses two main approaches – direct financial assistance (giving money tax-efficiently) and financial education.

We hope these insights are useful to you. To discuss your own intergenerational financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:

01476 855 585
info@casfin.co.uk

Gifting money, relationships and goals

What should you give to your grandchildren: cash, shares or property? How much should you give, and should you wait for them to reach an appropriate age (e.g. 18 years old)?

Naturally, it is important to first consider your grandchild’s parent or guardian. It could cause trouble if you are seen as “overstepping the mark” by giving to their child without first consulting them (even if your intentions are good).

Remember, the parent/guardian may ultimately have ownership and control over the asset(s) you give to your grandchild. For instance, a parent can open a Junior ISA for their son or daughter and manage it until they reach age 16 (the child takes over ownership and management at age 18). A grandparent cannot do this unless they are registered as the child’s legal guardian.

It is also wise to think about your grandchild’s financial goals. If they are young, they may not know what these are. Their aspirations may be focussed (legitimately) on shorter-term goals, like passing their A-Levels and going to university.

Here, you are the parent/guardian may need to strike a delicate balance between helping them achieve what they want, and what you think is best for them. For example, perhaps you could make a cash gift to support them through 3 or 4 years of higher education, and then make another in their 20s when they are looking to buy a house.
It is also important to consider your own goals and motivations in giving money. Are you looking to pass down the best possible legacy to your family, minimising inheritance tax (IHT) along the way? Are you seeking to help out a loved one in financial difficulty?

Consider being clear in your intentions, both with yourself and all relevant parties, before having the discussion about giving money.

Tax considerations

It is useful to know that most people in the UK get an Annual Exemption, which entitles an individual to give away up to £3,000 each year without this being counted as part of their estate. So, if you want to give cash, shares, or other assets to a grandchild while mitigating against IHT, this is worth noting (although the rules are more nuanced for parent/child gifts).

For instance, if you want to help a grandchild through university, then you might give £3,000 per year to help them cover their living costs. If you have a spouse or partner, they may also be entitled to their own Annual Exemption. Combined, this could let you both give away up to £6,000 to your grandchildren each year, without an IHT liability.

However, be careful to also think about your grandchild’s tax exposure. Could your gift possibly lead to financial difficulties later (e.g. with an unexpected HMRC bill)? For instance, suppose you want to leave your pension to your grandchildren when you die. If you die after the age of 75, then your grandchild may need to pay income tax on the inherited funds. The inheritance could even push them into a higher tax bracket, leading to unforeseen consequences.

There are ways to address these sorts of issues. For instance, it is worth double-checking your pensions to see what death benefits are available and include an ‘expression of wishes’, guiding the Trustees on how to distribute the funds following your death. If funds can remain within the pension, there is no need to distribute everything at once, which can mitigate the tax paid by your chosen beneficiaries.

The ultimate gift: wisdom

Naturally, many grandparents wish to give their grandchildren chances they never had when they were younger. By giving money, you could give them a head start in life. However, your practical gift – however generous – will only go far.

Ultimately, your grandchildren will need to learn to manage money by themselves. Indeed, a financial gift could even be harmful to a grandchild if they have not learned how to be wise with money – e.g. exercising self-restraint and delayed gratification.

Fortunately, you could be in a unique position to help them in their financial education, empowering them to make smarter decisions with money – perhaps smarter ones than you did! For instance, for a young grandchild, one idea might be to set up three money jars. One is for saving, one for giving and the last for spending. It may sound old-fashioned, but often the best ideas never change!

For an older grandchild over 18, a different approach may be more appropriate. For example, perhaps you could incentivise them to invest in their long-term future by matching any contributions they make to a pension.

Invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585
info@casfin.co.uk