The recent cost of living crisis has highlighted how expensive it is to bring up a child.
If a grandparent would like to contribute toward their children’s or grandchildren’s finances, here are two things to consider:
Make a gift
This is an easy way to reduce the value of your estate for Inheritance Tax (IHT) purposes.
So long as you live for more than seven years after you have made the gift, your family won’t have to pay IHT on your gift when you die.
Everyone has a £3,000 annual allowance each tax year (known as your annual allowance).
This means that you can give away assets up to the value of £3,000 in a tax year without it being added to the value of your estate on your death and without having to survive seven years.
Any part of the annual exemption which is not used in the tax year can be carried forward for one year.
If you have sufficient income to maintain your usual standard of living you can also make gifts of your surplus income, in addition to your £3,000 annual allowance.
These gifts can pay for your grandchildren’s school fees or give them a monthly living allowance.
If you want to do something more substantial by setting aside a lump sum to provide financial support for years to come, you may wish to consider a trust for your grandchildren.
If you survive seven years from the date you put the assets into the trust, the funds given away will fall outside your estate for IHT purposes thereby avoiding a 40 per cent tax charge.
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