How we helped Jane and Peter to invest in their grandson’s future

Making it possible to support grandchildren

It’s often more tax efficient for grandparents to save or invest on their grandchildren’s behalf than it is for parents, who may suffer potential tax consequences when transferring assets to their children. We can show grandparents a wide range of ways to help secure their grandchildren’s future.

Getting to know Jane and Peter

Peter and Jane are relatively new Canaccord Wealth clients. When they first came to see us, they had paid off their mortgage and taken their pension tax-free cash lump sums, which are now being managed tax-efficiently by Canaccord Wealth. They felt very fortunate, as they had no liabilities and a guaranteed pension income that was more than enough for their needs.  

However, money was tight for their daughter Caroline and her husband, as their mortgage costs had recently risen sharply, while Caroline’s earnings as a self-employed violin teacher had virtually ceased while she looked after her son.  

Why they needed our help

Jane and Peter were aware that neither Caroline or her husband, nor Jack, were likely to benefit in the future from defined-benefit or final salary pension arrangements. They were also concerned about the escalating costs of Jack’s possible future university education and his ability to get on the property ladder. 

They wanted to provide some financial assistance to help their new grandson but were unsure how to go about this. Although they had a reasonable amount in savings and investments, they felt uncomfortable about giving large sums to their family, as they were aware that their circumstances might change, and they might need access to this capital at some stage. For example, what if one of them needed long-term care in the future? They were seeking reassurance that they could help Caroline and Jack without compromising their own welfare.

Our Canaccord Wealth solution

Looking at the couple’s income and expenditure, we identified an income surplus of £6,000 per year. We advised Peter to invest this surplus in a stocks and shares Junior ISA for Jack. If Peter can continue to do this every year, by the time Jack reaches 18 and can access the money, he will have accumulated over £100,000 based on contributions alone, excluding investment returns. He could use this to fund further education or towards a deposit on his first home. 

These regular gifts do not affect the couple’s financial security and have the added benefit of being exempt from inheritance tax (IHT). 

Jane also wanted to help her grandson but was wary about an 18-year-old having access to too much money. We advised her to start a pension for Jack and contribute £2,880 each year. Basic rate tax relief means that the government would top the amount up to £3,600. She would also have the reassurance of knowing that Jack won’t be able to access the money until he is at least 57. The £2,880 she pays in will also be exempt from IHT as it falls within her annual £3,000 gift allowance.

What happened next

Peter and Jane were delighted with our recommendations, so we made all the arrangements for them. They are happy to be providing regular assistance for Jack; they know their support will have significant long-term benefits for him. We have also ensured that their own future is secure, while their arrangements for Jack will provide IHT savings to their eventual estate. 

Keeping in touch

Jane and Peter have regular review meetings with their Canaccord Wealth Planner. As part of this process, we also review their grandson’s JISA and pension arrangements, to make sure they are still affordable, tax-efficient and suitably invested.