I have seven grandchildren and want to give them £5,000 each before I die. What is the best way to do this? Five are under the age of 16 and two are over. I know Junior Isas are a safe bet but I wonder if there are any better ways to save? Do I have to think about inheritance tax? I am 78 years old and in good health, so hope to live for at least seven years if not more.
Laura Suter, head of personal finance at AJ Bell, says it is a lovely idea to give your grandchildren some money to help them start out in life. The first thing we should tackle is inheritance tax. As you say, if you survive for seven years after gifting them the money there will be no IHT due. However, if your estate is over the IHT-free allowance this is something to bear in mind.
You can gift up to £3,000 every tax year before you hit this rule, so you could only give about £425 to each grandchild each year to stay within this limit — meaning it would take 12 years to move across the whole £5,000 — not the most practical option. If you didn’t use this gifting allowance last year you can use it this year and, as we’re on the cusp of a new tax year, it means that over the next six weeks you could gift £9,000 and stay within your gifting allowances. On top of this you can give gifts of £250 per person, per year, so long as you haven’t used another allowance for them.
Another option is to gift them money out of your regular income, as by doing this you also don’t fall foul of the seven-year rule. There are strict criteria: the money must come out of income (so pension payments, earnings, dividends) not from capital and gifting that money shouldn’t impact your lifestyle (by depriving you of anything you currently pay for).
If you have surplus income you can give away unlimited amounts in regular gifts, so long as you meet these criteria. You’ll just need to make sure you keep clear records of this, so it can be proven to the taxman if needed.
The next stage of the question is where you should put the money. Junior Isas are the most tax-efficient place, but you’re right that the money is locked up until age 18. This means that they can’t access it before then, but also at age 18 the money automatically becomes theirs to manage. If you do open the Junior Isas you’ll need their parents to open the account first, and you can then fund them. You might want to take a different approach for the different ages of children.
For your younger grandchildren, investing the money could be the best option. They will probably have a long time until they will need to access the money, so investing it in a Junior Isa could be the best option. Their parents will need to pick the investments, but they can select some well- diversified funds and then be relatively hands off with the accounts until they need them. You can pay in up to £9,000 per child each tax year, so you’ll just need to check if their parents have already paid in money to ensure you don’t breach this limit.
With the older children, who might want to access the money sooner, you might be better sticking to cash. If you’re concerned that a Junior Isa has too many restrictions you could opt for a normal savings account. The top rate you’ll get at the moment is 3.9 per cent for an easy-access account, but you’ll need to keep an eye on the rate and make sure it doesn’t drop — if it does you should move it to the top rate account at the time.
Another option for the older grandchildren is Premium Bonds. You can buy them relatively easily as gifts and give them the chance to become millionaires — although of course they may get zero return on the money.
A promise of inheritance has been withdrawn. Can I claim against my parents?
My parents own a farm at which I worked for decades for low wages on the understanding that I would ultimately inherit it and be able to run it as a viable business. Even though there was no written promise of me getting the property, they verbally assured me I would inherit the farm. After a huge argument over my pay during the cost of living crisis, my parents removed me from their wills. This decision is devastating for my finances, drastically impacting my future plans. Should they be forced to give me compensation based on the value of the farm? What other remedies might I have for this loss?
Samara Dutton, partner at law firm Collyer Bristow, says you have the makings of a strong claim against your parents. Promises are not contracts and so are not usually enforceable. However, in England and Wales, where you rely on a promise to your detriment, you may be able to apply to overturn this.
Here, you have accepted low wages, and no doubt structured your life in a certain way for years on the expectation that you would inherit the farm on your parents’ death. Claims based on similar factual circumstances have succeeded and I would expect a court also to find in your favour.
It is less clear, however, what you would receive as a result. Until very recently there was “lively controversy” in the courts as to whether the starting point for determining the appropriate remedy was compensation for the loss suffered — for example, the additional wages you would have earned plus interest — or enforcement of the promise, for example the transfer of the farm and business to you in accordance with your expectation.
The Supreme Court this month ruled by a majority in Guest vs Guest that the second option was the correct approach. This means that, if the court finds that it was unfair for your parents to go back on their promise, it will proceed on the basis that to address that it should enforce the promise by transferring the farm to you.
While that is now confirmed as the guiding principle, the rules are flexible according to the individual circumstances of each case. The court will consider other factors in determining the appropriate remedy. These include whether your parents can actually transfer the farm to you or whether they have already sold it. It also includes practical considerations such as the implications of the transfer, for example in terms of tax consequences.
Then there is the unjustness factor. Would enforcement of the promise result in an unjust outcome for others, such as any siblings you have or your parents themselves? And finally there is proportionality. Does the detriment you suffered justify the proposed remedy?
Another factor that is key to your case is “accelerated receipt”. Your expectation was that you would inherit the farm on your parents’ death. If you are now to receive it (or some monetary equivalent of it), your award must be discounted to recognise the early fruition of their promise.
Try talking to your parents again but if you cannot reach agreement with your parents, it will ultimately be the court that decides.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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