Investing money for grandchildren is a common financial goal for many grandparents. Yet it can be hard to know the most tax-efficient way to invest for them while aiming to get the best returns.
Many grandparents believe that leaving money in a Will is the best way to pass on wealth to their grandchildren. However, there are more tax-efficient options that can be explored.
Gifting
Gifting is one of the key ways to reduce an Inheritance Tax liability by reducing the size of your estate over time. As with individuals, grandparents are allowed to give away £3,000 to relatives each tax year free from Inheritance Tax (£6,000 per couple).
You can gift larger amounts but if you do not survive for seven years after the gift, there will still be an Inheritance Tax liability.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Find out more about Inheritance Tax Planning
Junior ISA
Junior ISA’s are a popular way for both parents and grandparents to save for children.
Only parents/guardians can open the Junior ISA for their child, but other family members can contribute to the account. The maximum annual contribution in the 2023/24 tax year is £9,000.
A Junior ISA can not be accessed by the child until they are 18 years old.
At Four Wealth Management, we offer a Junior Stocks & Shares ISA through St. James’s Place. This means the annual allowance is invested with the potential to benefit from investment growth over time. Any growth in the JISA is free from liability to Income and Capital Gains Tax.
The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
Find out more about investment options and accounts
Pension
Saving for your child/grandchild’s retirement may seem odd considering it is so far away and you will not live to see them at retirement. However, starting to save for their retirement early will enable them to potentially benefit from compound growth. Saving for the long term also means you can adopt a more adventurous investment strategy which has the potential to lead to greater returns over time.
You can invest up to £3,600 gross per child per tax year. Automatic tax relief of 20% will be added to the contribution meaning this will only cost you £2,880 per tax year. Investments in a pension are free from income and capital gains taxes.
A pension must be opened by a parent or guardian on behalf of a child.
The value of a pension can fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Start investing for your grandchildren today
To explore which option is best for your individual circumstances when investing for your grandchildren and passing on wealth, please contact Four Wealth Management on 0117 973 0500 to book a no-obligation financial review meeting.
