The birth of Alice, my first granddaughter in September had me thinking about the best way to support her in the future. Whether it is small gifts, regular savings or larger amounts to help with university fees, a deposit for a home or the cost of a wedding then it could have Inheritance Tax (IHT) implications.
There is an IHT annual exemption which means you can give up to £3,000 per tax year. If you did not “gift” any money the previous year this can be carried forward, enabling you to give £6,000 free from IHT. Any gifts over this amount will only be free from IHT provided that you survive more than seven years.
The seven year survival rule also applies to any money over £3,000 put into a trust that the grandchild can access once they are 18 years of age.
In addition there is a small gifts allowance which enables you to give gifts of up to £250 per recipient free from IHT each year.
Another option is to open a savings account in the grandchild’s name. The interest earned on this account will be tax free. Obviously the greater the amount invested the greater the tax saving.
Alternatively the grandparent can pay into a Junior ISA. Whilst the grandparent cannot open the account you can make contributions up to the annual tax free limit of £4,060. This money cannot be accessed until the grandchild is aged 18 so it should help with college fees, etc.
Given that all these exemptions exist it seems only sensible to plan ahead and to ensure that you are not caught by an IHT liability when it was not necessary.