Bank of Gran & Grandad helps out more and more

Parental assistance was set to rise from an average of £17,000 in 2016 to £21,600 in 2017.

Speaking last May, Nigel Wilson, chief executive of L&G, said: “The problem is getting worse, not better.

“The intergenerational inequality that creates the demand for parental funding continues to widen – younger people today don’t have the same opportunities that the baby boomers had, including affordable housing, defined benefit pensions and free university education.”

And more people are also tapping into the Bank of Gran and Grandad.

Last summer a Saga Money study pointed to grandparents providing £37 billion to their grandchildren, an average of £9,360 each, with one in ten specifying this should be spent on a deposit for a house.

Grandparents view the gifts as an early inheritance, and four in ten are happy for it to be spent on whatever their grandchildren desire.

Other expenditure includes education (23 per cent), holidays (13 per cent) and driving lessons (12 per cent).

Alex Edmans, head of product at Saga Money, said: “Most of the money grandparents are gifting is coming from their cash savings, so whatever small amount of interest they are missing out on is clearly outweighed by the joy they get in seeing their grandchildren benefitting.

“Our customers are increasingly turning to gifting money through equity release in order to help grandchildren on to the property ladder. On average they take £33,000 out of their property to give to family.”

But grandparents, it cautions, should not over-reach themselves. Tips include: Make sure you have enough money to fund your retirement and future care needs before you assist others.

Ensure the terms of the gift or loan are clear, particularly if there is something specific you want to help your grandchild with or, in the case of a loan, an agreement about how and when it will be paid back. It might sound distasteful at first, but will possibly save a lot of awkwardness in future.

Giving an early inheritance can be Inheritance Tax efficient, so look into the options as to how much you can give before becoming liable to tax.

Gifting could affect your own or your grandchild’s entitlement to benefits, particularly if you might need long-term care in later life. Gifts could be regarded as a ‘deliberate deprivation of assets’ which means taking cash out of your estate to ensure you qualify for means-tested benefits. So take care to ensure you do not fall foul of the regulations.

Many people take equity built up in their home in order to gift money to grandchildren. It is important to take advice before doing this as the ‘deprivation of assets’ rule may still apply and there could be a cheaper way of finding the money.

So the message is this – by all means help your grandchildren but ensure you can really afford to do so. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners, based in Solihull. Email: tlaw@eastcotewealth.co.uk The views expressed in this article should not be construed as financial advice