.jpg)
Saving for Grandchildren
Giving money to your grandchildren
There are a host of reasons why you may want to give money to your grandchildren. It may be to encourage them to start saving, building a nest egg for when they leave home or start college, or simple generosity. Whatever the reason, there are a few things you should think about before making the transfer or handing over the £5 note. Do you want your grandchildren to know about the money? Do you want it locked away until a certain date is reached? Or do you want them to be able to access it when that 'must have' item is required. When you are clear on why, the next questions are around the how. Do you want to add to any saving accounts that the parents have set up? Or do you want to set up something separate. How are you going to save? Will you make regular payments? Or will this be a one off investment to set things going?
None of these questions are difficult. Being clear on what you want to do though will make it easy to decide which option you want to take. However, as with the rest of your money you need to think about the taxman.
Taxes
It may be surprising but children, like adults, have an annual tax allowance (£6,475 in the tax year 2009/10). Few grandchildren will cross this level, but saving and investment income can add up particularly over time. If this is the case then professional advice is probably worthwhile.
For the grandparent you need to know there are three allowances that you can use to give money. You have an annual allowance of £3,000 (in total, not per grandchild) which is tax exempt, a small gifts allowance of £250 to as many people as you want (but not to a grandchild who has received the whole or part of the £3,000), and the right to give as much as you like regularly from your unused income after tax (but not from your savings). This could be monthly gifts or simply on Birthdays or other celebrations. For those with older grandchildren, each grandparent can also give a £2,500 wedding gift to a grandchild who marries, without incurring tax.
Investing for your grandchildren
Your allowance can be invested in a Building Society or even a Tracker Fund in your named account, but with your grandchild's initials added. There are a number of specific products available and some include freebies. Don't be swayed by these and stay focussed on the interest rate. This is a simple way of ensuring that the money cannot be touched until they are 18 years. After that you have no control!
The earlier you start investing the greater the return, but any investment is obviously subject to the whims of the financial market. However, long term you would hope to see a substantial growth on any money invested.
Discretionary Trust Funds can be set up but these are expensive to establish and run. Professional advice would be essential
Useful links:
http://www.nsandi.com/savingneeds/investforachildsfuture.jsp
Child Trust Fund
All children born in United Kingdom after September 1, 2002 will have received a Child Trust Fund voucher from the government to encourage regular saving. This is currently worth £250 at birth with a further payment of £250 (£500 for lower-income families) when the child turns 7. Grandparents and other relatives can add to this to a maximum of £1, 200 per year. You may need to check with others in the family to ensure that this limit is not exceeded.
Useful links:
Alternative savings accounts
You need to think about whether you would want instant access, notice accounts or want to leave the money in for a set period of time. One bonus is the fact that when grandparents save for their grandchildren, the interest is tax free www.fairinvestment.co.uk has information about this.
Stakeholder Pension
Setting up a pension for your grandchild may not be the first thing that springs to mind when thinking about savings, however it is possible to set up a stakeholder pension for any person under the age of 75. This includes your grandchildren.
Up to £3,600 each year can be given to each grandchild. However, you would only need to put £2,880 in as the HM Revenue and Customs then adds 22% basic rate tax relief on top, taking it to the full allowance. This is than drawn as a pension from the age of 55 but the beneficiaries must be resident in the UK.
Investing for your grandchildren is a complicated area and you would need to seek professional advice for the best options
