How to Gift Money to Children and Grandchildren

Christmas is a time for giving and what better gift could you give to the children and grandchildren you care about than a gift which could grow into a really useful sum of money.

As the festive season approaches, the Healthy Investment team thought it would be helpful to provide you with some useful information on the rules, yes there are lots of rules (mainly from the tax man), on giving gifts of money.

Making a gift to your children or grandchildren while you are alive can be a great way to reduce the value of your estate to avoid inheritance tax, as well as benefit those who you care about. Estate and tax planning can be a complex matter, and whilst the Healthy Investment team can provide you with lots of useful information, you should seek professional financial advice if you are concerned about inheritance tax.

Christmas and birthday gifts
A bank or building society deposit account is the usual place for Christmas and birthday money. The money is safe and the recipient will get interest every year on the balance of the account.

If you are happy to take a bit more risk, then a share based Child Trust Fund or Junior ISA might be appropriate. Generally speaking, share based investments perform better over the medium to long term, however they are more risky and the value can go up and down as share prices rise and fall. If the child is young and you know the money is going to be invested for a long time, a share based investment like a Stakeholder Child Trust Fund or a Stocks and Shares Junior ISA should be considered.

You can find out more about Healthy Investment’s Stocks and Shares Junior ISA here.

Only the parent of a child can open a Junior ISA, however once it’s open anyone can invest in it for the child.

Just like an adult ISA, all the growth is free of income and capital gains tax. Because of the special tax treatment, the government limits the amount that can be invested every year – this year’s limit is £4,260.

You can invest from just £10 into a Healthy Investment Junior ISA.

The main concern we hear from parents is when the child reaches 18, parents no longer have a say in whether the money remains invested or accessed and spent.

Investment Bonds
If you want to give a more substantial gift and want to keep some control over when the child is able to access the money, an Investment Bond might be appropriate.

Investment Bonds can be held in the joint names of a child and parent or a child and grandparent, which gives the giver some say over when the investment is accessed.

If one of the joint bondholders dies the investment is transferred to the remaining holder, without having to wait for the estate to be wound up.

For substantial gifts it might be worthwhile considering setting up a Trust Fund. Trusts are no longer just for the mega rich and can be useful in ensuring that your gift is used wisely.

Inheritance Tax
If you want to give money to avoid the government taxing your estate when you die, there are some fairly complex rules that you need to think about.

The first £325,000 of anything you own; that’s property, savings, investments and your possessions, are free from inheritance tax. That might sound like a huge sum of money, however with the way that house prices have increased, many families are now facing inheritance tax bills they never expected.

If you leave your home to your children, including adopted, foster or step children, or your grandchildren, the allowance increases to £450,000.

If you are married, or in a civil partnership, when one partner dies their allowance automatically passes to the surviving partner.

Any amount over these limits is taxed at 40%.

The Money Advice Service has more information on Inheritance tax: The Money Advice Service – Guide to Inheritance Tax.

Giving money away to avoid inheritance tax
You can’t just give your money, or your possessions, away to avoid paying inheritance tax.

As a general rule you have to have given the gift 7 years before you die, otherwise it will be liable for inheritance tax on a sliding scale, depending on how long the giver lives after the gift has been made.

There is an annual allowance of £3,000 that you can give without it being included in the inheritance tax calculation and small gifts to other people of up to £250 are also exempt.

There are special rules for helping relatives with living expenses and for wedding presents.

For more information on gifts that are exempt from inheritance tax, you can visit HMRC’s website: HMRC – Inheritance Tax and Gifts.

Finally, what and how much you wish to give your children or grandchildren is completely up to you. Any gift is significant and, if invested wisely, can make a real difference to a child’s financial future.

At Healthy Investment, we pride ourselves on our ethical values and ethical products. The Society will never invest your money directly in alcohol, arms and tobacco industries, nor gambling and pornography providers.

For further information about how we invest Members’ money and the ethical investment products we provide, please visit our website at www.healthyinvestment.co.uk or contact the friendly team at Healthy Investment on 0161 762 5790; or email enquiries@healthyinvestment.co.uk.

Alternatively, you can find out about our ethical products by clicking on the links below:-

ISAs

Junior ISAs

Investment Bond

Tax Exempt Savings Plans