FINANCE GRANDPARENTS
A grandmother’s
surprise reward
A grandmother of nine finds that contributing to her grandchildren’s education brings unexpected dividends
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are, but when the grandchildren will receive the money, will they be wise enough to use it sensibly and can you keep any control over the funds? Giving children too much money at an early
age has always been a source of concern for parents. Dominic O’Connell, Head of Tax, Trust and Estate Planning at Coutts, says that this is
now one of the major issues. “People are making arrangements more from protective motives than just tax motives,” he says. “They are concerned about how children or grandchildren might spend money which has been given to them too early. A lot of clients are worried about what is the right age to pass wealth down.” %
Other ways grandparents can help
ISAs
An Individual Savings Account (ISA) is a tax wrapper around a savings or investment product, which means that the interest you get is not taxed. It is only available to children over the age of 16, and cash ISAs have a current investment limit of £5,100 per annum. If the gift to fund an
ISA is made out of surplus income then it will be exempt from inheritance tax. If the gift is made out of capital then, depending on how much annual exemption has been used, it may also escape the claws of inheritance tax. Once placed in the ISA, the fund will grow tax free
and the proceeds will be tax free when they are taken. However, the funds are immediately the property of the child. The grandparent and the parents have no legal control over when the child accesses the gift.
PENSIONS
These have become an increasingly popular option because of tax advantages and the growing cost of pensions. Under current legislation, a child can own a pension and up to £3,600 gross can be contributed each year which is eligible for basic rate tax relief. So, to make a gross contribution of £3,600, a grandparent
only needs to put £2,880 into the pension. A grandchild is not able to access the pension fund until they reach 55. For most grandparents,
the inheritance tax implications are the same as for ISAs, CTFs and bare trusts. But if the grandparent is drawing an income via an Unsecured Pension and is not drawing the maximum allowable amount, then the potential tax saving of drawing extra income and gifting it to the child is up to 35 per cent. If the grandparent is over 75 and drawing income under an Alternatively Secured Pension, then the tax saving can be up to 82 per cent.
y husband and I first began thinking about the cost of school fees at a dinner party. Our friends
were worrying that their grandchildren might not be able to afford the advantages of an independent education which they and their children had enjoyed. On the way home, we talked about this and decided that, even if it meant that we could leave less to our grandchildren in our wills, we would pay for their education. We considered this to be the most important foundation for life. We are so glad we did this and are
finding, to our surprise, that we are getting an enormous kickback from it. We are very proud of our eldest granddaughter, 12- year-old Molly, who took part in The Times Spelling Bee, but we are equally proud of seven-year-old Isabella, who won a prize for her book cover design. Monty, four, has the legs of a serious rugby player and can already kick a ball over the roof, though fortunately not through the window. From the beginning,
we have been invited to school events, such as the nativity play, where a child dressed as a donkey sang, very quietly but perfectly on-key, ‘I’m a little donkey’. We are shown school reports and have many delightful drawings stuck firmly to the fridge door. We are lucky. At weekends, we all live
We
considered our grandchildren’s
education to be the most important foundation for life
in a heap in the same Northamptonshire village and get breathless updates of the latest news in our nine grandchildrens’ lives. Molly, now at boarding school, keeps us updated with emails and texts. Augusta joins her in the autumn and already owns a mobile phone. It is the greatest fun hearing their news – we feel really involved, and, joy of joys, never have to do the school run or help with the homework. We’ve been there and done that already!
50 FIRST ELEVEN SUMMER 2010 WWW.FIRSTELEVENMAGAZINE.CO.UK
PHOTOS: ISTOCKPHOTO, MAMMAMAART
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