This article is for general guidance only, and is not financial advice. You should always talk to a qualified professional or service to work out your specific needs before taking action on any of the information in this article - but once you've read it, you'll be in a much better position to have those discussions with the professionals. All information in this article is correct at the time of publishing, but laws, entitlements and allowances may change over time.
One of the great joys in life is being able to provide for our families – and having if you have grandchildren, you might be wondering how you can help them.
There are plenty of ways to assist grandchildren financially, whether that's starting a nest egg for a new arrival, contributing as they get older, giving them a leg up onto the property ladder and even saving for their pension.
Below, we’ll give some tips on good approaches according to their age, as well as inheritance tax considerations to think about.
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Very young children won’t be aware of any money you give them. But your gifts now could be used to help them with some of the many financial challenges they’ll face as an adult.
This could be going to university, buying their first home or (as mind-boggling as it sounds at this early stage) even funding their retirement – and for that you could start a fund that might be worth £1m in later life.
There are several different accounts you could use if you want to make things a little easier for their future, and you’ll need to decide what kind of gift you’re willing to give – and how regularly you’ll give it.
ISAs aren’t just for the grown-ups. Each year up to £9,000 (at the time of writing) can be invested, tax-free, in a cash or stocks and shares Junior ISA, as long as the child lives in the UK.
Only parents or legal guardians can open a Junior ISA on behalf of a child, but once the account has been opened anyone can pay money in.
A child can have a Junior cash ISA and a stocks and shares ISA, but only one of each (unlike adult ISAs). They can’t have an adult ISA until they turn 18.
The latest HM Revenue & Customs data shows that around 42% of subscriptions into Junior ISAs are cash, which suggests 58% are in investments like stocks and shares. Stock market returns are not guaranteed and – like any investment – your capital is at risk. But over an investment timespan that could span 18 years or more, stocks and shares typically perform better than cash.
Figures from Vanguard, for example, show that in the years between 1901 and 2024, the average annual return from stocks and shares was 9.17%, compared to 4.56% for cash – although it’s always worth remembering that past performance is not a reliable indicator of future growth.
A difference between a Junior ISA and an adult ISA is that over 18s can choose when to access their savings, while children cannot take any money out of their ISA until their 18th birthday. When they turn 18 it will be automatically converted into an adult ISA.
If you would like your grandchildren to be able to access their money before they turn 18, you can pay money into a children’s savings account. But you’ll need to ensure you do it in the right way.
Some banks and building societies will let you open a savings account for a grandchild, while others will ask for a parent or guardian to open it. You might need a copy of their identification document to do open an account.
This is a great way to find a home for birthday and Christmas presents, but care should be taken if you are paying in larger sums.
Always try and pay money into the child’s account directly, rather than asking the parents to do it. Alternatively, you could provide documentation of the gift to make sure the taxman can see where the money came from.
If HMRC believes this money came from the child’s parent, and the interest received on your gifts amounts to more than £100 a year, tax would be charged as if the savings were the parent’s own. You might hear this referred to as the “£100 rule”.
A child can have a pension plan from birth – and contributions from grandparents could lay the foundation for a very comfortable retirement.
Ian Dyall, head of estate planning at wealth planners Evelyn Partners, says that each year non-taxpayers (including children) can pay £2,880 into a pension, which is boosted to £3,600 by tax relief.
“Not many children will thank their grandparents for the gift of a pension, but they will be very grateful once they are adults.
“The combination of tax relief and the effect of compounded returns over many years mean that starting a pension for a young child can mean they are comfortably set up for later life before they hit middle age.”
He adds: “A sum of £2,880 invested every year in a pension set up for a newborn, topped up with government tax relief, would mean a total of £64,800 fed into the pot over 18 years.
“Were those contributions to grow by an average of 5% (after fees) a year, then by the time your grandchild turns 18, the pension would be worth £107,619.
“Even if no further contributions were ever made and investment returns continued at the same rate, the pension would grow to £1 million by the time they reached the age of 62.”
You might also want to think about gifts that can help teach young children about money.
As children get older, you can still carry on paying into Junior ISAs or other savings and investing plans.
But, as they start seeking more financial autonomy, chances are there’ll be plenty of things they would like to spend money on – from toys and video games to clothes, gadgets and tech.
If you would like to chip in with this sort of spending, you could consider paying money onto a pre-paid card for your grandchild (or debit card once they are 13).
Using these platforms allows you to help them with certain savings goals or top up pocket money and many come with an app that will encourage children to engage with their savings and practice managing their finances.
Parents will need to open this type of account for their child, but once it’s up and running it should be easy for grandparents to pay money onto it.
Students in England who graduated in 2024 did so with student loan debt of £53,000 on average, according to government figures.
So it’s not surprising that many grandparents will want to alleviate that burden in some way. You could help with food and utility bills, offer rent support or pay down an overdraft.
You just need to be mindful that if you are paying money directly into their student bank account, you’ll have no control over how it will be spent, so you’ll either need to set some ground rules or prepare to be entirely hands-off.
In many cases, it will also make sense to have a chat with the parents to discuss the best way to help, so everyone is aligned in their support during this new chapter in your grandchild’s life.
As Ian Dyall says, decisions around whether or not to help students isn’t always clear-cut. “On the one hand, [giving regular financial support] might seem like the generous and loving thing to do, but on the other, it means the student might miss out on valuable life lessons around managing money, the cost of living and budgeting according to one’s means.”
It’s tough for young adults to get onto the property ladder, but one way that grandparents can help is to contribute towards the deposit.
This can be an agreement to give them the money once they have found a place to buy, or you can contribute to an account that’s designated for a house deposit.
If they have one, you could regularly pay into a Lifetime ISA on their behalf. These accounts can be opened by anyone aged between 18 and 40 and are designed to help save for a first home deposit or towards retirement.
Each year up to £4,000 can be paid in and earn a 25% government bonus, worth up to £1,000, so Lifetime ISAs could be a way for you to help your family.
There is, however, a flaw in Lifetime ISAs. That’s the fact that they can only be used to buy someone’s first home if it costs up to £450,000. If the cost is above that, they’ll be penalised.
They have other strings attached too. For example, they can only be used to buy a first property with a residential mortgage (so no cash purchases or buy-to-let properties). The ISA has to be open for at least 12 months before the home purchase.
The previous Help to Buy ISA scheme was similar, but closed to new applicants in 2019. However, if your grandchild already has one, you can still pay into it until November 2029.
If just giving a lump sum feels tricky, there are other ways to help a grandchild with home ownership.
Some specialist mortgage lenders, for example, allow family members to use their savings or the equity in their own home as security for the loan. This can be used to boost the value of their deposit (without actually handing over the money to them) and reduce the interest that is charged on the mortgage.
Alternatively, acting as a guarantor on the mortgage means you can help them get a larger loan. However, you’ll be liable for repayments if any are missed.
Grandparents could also use ‘family offset’ mortgages. This involves paying money into a savings account that is linked to the borrowing.
Instead of earning interest, that balance is instead used to reduce the amount of interest that's charged on the grandchild’s mortgage, reducing their monthly repayments.
A mortgage broker will be able to explain the options in more detail, and it’s worth thinking about every angle if you choose one of these methods, as your own home and investments could be at risk if your grandchild struggles with repayments.
Weddings are a time for celebration, and grandparents can give up to £2,500, free of inheritance tax, when a grandchild or great-grandchild marries (you can give up to £5,000 to your direct offspring).
This money can be used to contribute to wedding costs or to get their married life off to a good start.
You can give more than this, but your gift could be subject to IHT further down the line (see below).
Gifting money to grandchildren can be an excellent way of reducing a looming inheritance tax liability – although not everyone has to pay the dreaded bill.
Inheritance tax is charged on the value of your estate when you die. Currently it’s charged at 40% on the value of estates over £325,000, which is what’s called the nil rate band.
However, many people can pass on much more than that tax-free. If you are leaving your home to children or grandchildren, for example, that allowance will be boosted by £175,000 to £500,000.
Transfers between married couples are also tax-free, which means the surviving partner would be able to then give their children and grandchildren up to £1 million between them before being liable for IHT.
If it looks like your estate will be liable for IHT when you die, you can reduce the eventual bill by gifting money over time.
This reduces the value of your estate that IHT will be charged on once you have died. Gifting correctly can mean giving your loved ones, for example £1,000 now, rather than £600 after you have died and 40% tax has been deducted.
If you don’t do it correctly, there could still be a bill if you die within seven years of the gift. But the key allowances to know about are:
For larger gifts over these allowances, you’ll need to survive seven years after you give them before they become totally tax-free. These are referred to as ‘potentially exempt transfers’.
But Ian Dyall points out, there’s another IHT exemption which is massively under-used: giving regular gifts from your surplus income. That could help with a grandchild’s rent or living expenses, payments into a Junior ISA, or pension contributions.
“This is fantastic way of passing on wealth tax-free that people often think is too good to be true. [However] such gifts must meet three criteria, so they don’t fall foul of HMRC rules.
“First, it must come from income, rather than capital [such as savings accounts or investments]. Second, it doesn't matter how often you make a gift – whether it's monthly or yearly, for example – so long as it follows a regular pattern.
“Third, the gifts should not affect the giver’s day-to-day standard of living.”
Such gifts can come under close scrutiny by HMRC, so it’s important to keep a good record, including details of your income and expenditure. This will mean you have evidence that your gifts met the criteria if they are ever challenged.
It’s also important that you don’t give away money you might need in later life, so if you are planning on gifting larger sums, it’s a good idea to get professional advice.
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