Savings accounts

[williamwright]

Suppose someone wanted to have a method of feeding money gradually to his grandchildren, to help them through school and university. What would be a good way to do it?

Bill

[Allan]

I know it's not school/university, but you might like to think about a Lifetime ISA (which can only be used for house buying or pension, unless they want to pay a penalty). There are some generous tax rebates for a Lifetime ISA.

Also, if you make _regular_ contributions to them, it will be tax efficient for (your) inheritance tax (if applicable).

[John Rumm]

A junior ISA could be worth a look. A parent or guardian would need to open it, and can manage it[1], but the money belongs to the child. They can take control of it themselves at 16, but can not withdraw from it until they are 18. Total contributions to it can be up to £9K/year.

[1] There are cash versions as well as stocks and shares versions (most of the latter will also allow holding managed funds, unit trusts etc). All interest or dividend income is tax free and there is no capital gains liability either.

[Robin]

Depends on just what you mean by gradually.

As others have indicated, it's easy enough to set up an account into which you can gradually feed money.

It's more difficult these days to to ensure your grandchildren spend the money gradually. Savings accounts and other simple forms of trust ("bare trusts") mean your grandchildren become entitled to all the money when they reach 18. They could then blow it all on, say, a long term investment rather than honouring your wishes and spending it gradually on 3 years of partying, Morris dancing or whatever :)

If you want more control you can set up a "discretionary trust". The trustees then have power ("discretion") over which grandchild gets what and when. Obviously that makes the choice of trustees important. It also makes it important to look at the tax consequences.

There's lots of advice about all this online. A typical canter picked pretty much at random is

[SH]

yes, keeping records that show the contributions came out of regular income and that it did not force you to dip into savings for your own upkeep is good for showing to the tax man that its exempt from IHT should the worst happen to you.

However, IHT does not apply if you live for 7 years or more after your last contribution.

Everyone has an annual gifting allowance

You can also make one off additional tax free gifts depending on the circumstances:

[SH]

Have a think about the scenario where the grandchild moves in with a drug dealer and hands the savings over instead of using it for university/wedding/house deposit/first car etc?

One other possibility is to pay into a stakeholder pension scheme which then locks the money till the grandchild hits retirement age but I appreciate that kind of defeats the onject.

If you do have an adult with an account with the child's money in it for the purposes of controlling what the money is spent on, if that adult dies, that money is considered to be part of their estate rather than actually belonging to said grandchild by proxy.

[Andrew]

?

[John Rumm]

That risk would apply to any scheme that gives money to grandchildren. It comes down to if you trust them to behave sensibly.

No that is not the case with a junior ISA - the money is the legal property of the child. The parent / guardian does not own it and is not able to access it (save for a few exceptional cases like with terminally ill children). So the money belongs to the child's estate not the parent.

[Andrew]

You can open SIPPS for children. Pay in £2880 every year and the taxpayer chips in £720. Stick it in a global investment trust or one of the low-cost Vanguard funds and they will thank you when they get to 57 and realise what a stonking retirement they will have. Downside is of course, no access until 57. This is also an upside though they could also lose half if they get divorced too.

[Martin Brown]

I don't know if it is still possible but Google "Deed of covenant".