Smart Ways to Invest for Your Grandchildren

There are several ways to set aside money for your grandchildren for when they become independent. Setting up a child savings account, junior ISAs, premium bonds and even starting a junior stakeholder pension are all great ways to create a nest egg and security for their future. 

The concern that some grandparents and parents have is that a handy lump-sum intended to cover university fees or a deposit on a house may not withstand the temptation of a sports car. So many people like the idea of retaining some control over their investment gift.

What are the options for investment for grandchildren then?

Junior ISAs

It’s possible to set up a junior ISA for a child, either in cash or stocks and shares, with an annual limit of £4,080 for 2016-17. Children are not allowed to own stocks and shares, but it’s possible to set up an investment fund on their behalf. You are able to make the application using your own name, and it’s possible to add the child’s name to the form to make it clear that they will become the beneficiary.

Junior ISAs are generally set up as a bare trust, which will entitle the child to all the money when they reach 18. It’s possible to create a discretionary trust, in which the trustee – probably the grandparent or parent – has the power to decide when the money could be drawn down.

However, there are tax disadvantages in retaining control of the investment, as it will count against the adult’s tax liabilities which are almost invariably higher than the child’s.

There are simpler investment vehicles as well:

Child savings accounts

Grandparents can easily set up a children’s savings account – all that’s required is the necessary documentation, usually a passport or birth certificate. While parents must pay tax on any interest received above £100 a year, this does not apply to grandparents. The grandchild will not be liable to pay tax so long as their income is less than the personal allowance, which stands at £9,440, and grandparents can make sure no tax is deducted at source by completing a R85 form.

Stakeholder pension

For a very long term investment, a stakeholder pension is an option, particularly because as the rules currently stand, they will benefit from tax relief on contributions. This means the maximum contribution of a grandparent could be £2,880 per tax year, which is topped up to £3,600 by the government. The grandchild will gain control of the pension at 18, but they won’t be able to do much with it until they are 55.

Whatever your situation, and whatever stage you’re at in the process of starting to invest in your grandchildren, contact our financial planners today.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.