If you’re looking for an alternative to the piggy bank
When grandchildren come into our worlds, they often become the dearest thing to us.
We love to dote on them, buy them presents we know they’d like, teach them our worldly wisdom.
We want them to be the happiest they can be and ensure they have a bright and stable future.
For some of us, that means looking to give them a bit of financial stability if we can. In fact, one in 10 grandparents have given their grandchildren a lump sum averaging £15,000.
Wanting to help out our grandchildren is often about more than just spoiling them, for many of us it means we’re helping out our own children with any financial difficulty they may be facing.
With childcare, nursery and education costs being as high as they are, many parents struggle financially and it’s understandable that grandparents want to help in any way they can.
What are the options?
Of course, cash slipped into a birthday card or pocket as and when is a welcome gift, and our grandkids are usually very appreciative.
But there are some other ways to use any spare cash you have to put towards something that might offer a longer lasting effect.
There are a few things to bear in mind first. While we might want to help as much as we can, many of us also have to consider our own finances first and make sure any aid is within our means. There are ways of doing both.
Don’t wait until the last minute
Just like saving for a car or house renovation, the earlier you start to put money aside, the more financially stable you’ll be. If you think you’ll be saving for a long time, it might be worth looking at the options outlined later.
Consider tax-efficient options
Giving lump sums can incur taxes so make sure you look into the options before gifting money to your grandchildren. Inheritance tax and other taxation issues can take the joy out of monetary gift giving but understanding the rules makes life much easier.
Think about the time of life the money will be needed
The type of help you might want to give to very young grandchildren will undoubtedly be different from the help older grandchildren would appreciate. Costs like school fees or extracurricular activities will be very different from university fees or help buying a first home. And the way you might want to save for these will be different.
Whatever your aim in wanting to help out your grandchildren, here are a few options you could consider that might help you put aside more than just a few pennies for them. And remember, always seek financial advice before you make any decision.
Setting up a children’s savings account
If you’d like to set up a savings account in your grandchild’s name, you shouldn’t really face any obstacles – though it may take a little longer than putting pennies in a jar.
If you’re setting it up in a grandchild’s name, you’ll need some legal documentation such as a birth certificate.
One of the good things about this option is that any interest should not be subject to tax. A child’s savings account is taxed the same way an adult’s is, but most children don’t earn over the personal allowance threshold.
So, if the child earns less than the personal allowance, which is £11,850 for 2018-19, then ensure any interest is tax free by contacting HMRC for an R85 download – if you’re a tax payer.
Simply fill in the form and give it to the bank or building society you’re opening the account with. This way they can ensure the savings aren’t taxed and you won’t have to go through the process of claiming tax back.
You can normally manage these accounts how you wish, putting in as much or as little as you like, but all banks and accounts will be different and have different terms and conditions, so make sure you do your research and choose the one that works best for you.
A junior ISA
Junior ISAs are a popular way to save for children’s futures. Only a parent can set up a junior ISA for their children, however other members of the family can pay into the account – making them great for grandparents.
Depending on the tax year, there’ll be a limit on how much you can pay into the account, but how you contribute is normally quite flexible. 2018-19 currently allows a maximum of £4,000 – and those with Child Trust Funds are ineligible.
If you’re looking to put in a little each month, you just set up a direct debit to do so and you can work out exactly how much you’ll be contributing for the year.
A junior ISA is a great way to help your grandchildren in the future as the money can’t be accessed until their 18th birthday, and only they can access it.
It’s also a great way of getting children into the habit of saving from a young age as they can see the benefits of ongoing investment.
Once they turn 18, they have total control of the money, so they may need a little advice from their wise grandparent on how to spend or keep saving it!
Setting up a pension for your grandchild
This may seem like a far-off concept, especially if your grandchild is very young. But as we all know, time flies, and before they know it, they’ll be looking to retirement.
You can start a ‘self-invested personal pension’ (Sipp) from the moment a child is born and contribute to it each year. Your grandchild will gain access to it when they turn 55. Over time, a small monthly amount can result in a sizeable sum for them which could really help them out later in life.
Paying a property deposit
If you’re looking to financially help your grandchildren in one fell swoop, then paying a property deposit for a grandchild could be the way to go.
The bigger the deposit paid, the lower the mortgage payment your grandchild will pay, so lending, or gifting, money towards a house deposit should mean lower monthly repayments and help them on a monthly basis. This can be a huge help for grandchildren trying to get on the property ladder.
If you simply want to gift your grandchildren some money each year instead for them to spend on what they like, you can give up to £3000 without paying tax. You can also give small tax-free cash gifts of up to £250 to as many people as you like during the tax year.
However you wish to help out your grandchildren financially, they’re sure to be grateful. Before you make any decisions, make sure you seek professional financial advice first.
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