I’m building my grandson a £50k pot for his 18th birthday… but I’ll only pay in £18k
RATHER than gifting a cheque every birthday, Anthony Weale has found a better way to build a nest egg for his grandson, Benedict.
With help from other family members, who are also contributing, Anthony, from Cambridge, will hand over tens of thousands of pounds in savings to Benedict when he turns 18, while avoiding inheritance tax at the same time.
Aged five, Benedict already has £5,000 stashed in a Junior Isa (Jisa) with investment platform Hargreaves Lansdown, which Anthony hopes will have grown to £50,000 in 13 years’ time.
The retired university administrator, 78, began paying into the account three years ago, and contributes £1,000-a-year as a lump sum, which is invested on Benedict’s behalf by his mother, Gillian. To spread the risk, the money is split between funds, to try to minimise any losses.
Anthony hopes his grandson will be able to use the cash to pay for education or a house deposit. It could also reduce the inheritance tax payable on his own estate. Any gifts are free from the tax, so long as the giver survives for seven years after making them.
You can give up to £3,000 each year to one individual or split it between several people without risking an inheritance tax bill.
You can also make regular gifts to loved ones from surplus income, such as your pension, as long as you can show these payments were made regularly and have not impacted your standard of living.
More than £1.5 billion was paid into Jisas in the 2021/22 tax year, according to HM Revenue and Customs. Launched in 2011, it has the same tax-free benefits as an adult Isa and allows families to pay in up to £9,000 every year.
There are two types of Jisas: cash or stocks and shares accounts. Children can have both and split their allowance. Interest earned on savings or any increase in the value of investments is tax-free.
Only a parent or guardian can open a Jisa for a child under 16 but, once open, anyone can pay into it. The money is locked away until the child is 18, apart from in exceptional circumstances.
When choosing whether to open a cash or stocks and shares Jisa, Laura Suter of AJ Bell says: ‘If you’re starting to save from birth you can take more risk. If your grandchild is a bit older it may be better to stick to cash.’
The best-paying Jisa is from Beverley Building Society at 5.5 pc, but it can be opened only in person. Coventry Building Society offers 4.95 pc, and it can be opened by post, in branch or by telephone.
If you invested the full £9,000 allowance into a Jisa every year from your grandchild’s birth, by 18 it would be worth £266,000, assuming it grew by 5 pc a year.