Prime Time Financial

If you are currently retired, then you are in what has been described as the “golden age” to be retired. Whether it feels like that or not, there are certainly some benefits available now which weren’t in the past, and others which won’t be in the future.

What this means is that some people in retirement are in the fortunate position of wanting to pass on their wealth to future generations. Often that means grandchildren heading for university, or looking forlornly at raising a large deposit on a house.

So what are the possible ways of passing on money, tax-efficiently? Here are some ideas.

1. Junior ISAs
Previously, ISAs could only be held once a child reached 16 (18 for a stocks and shares ISA). But Junior ISAs are available from 1st November 2011. These are available for children who do not own a Child Trust Fund, although the Government does not contribute like they did for a CTF. Both Cash and Stocks & Shares investments are possible, with the same tax-efficiencies of standard ISAs. There is a total contribution limit per year of £3,600, and they turn into a standard ISA at age 18, so could be a good way to save on behalf of children or grandchildren.

2. Pensions for Children
If you, on behalf of a new-born baby, were to contribute the maximum allowed for a non-taxpayer into a pension plan (yes, even children can have one) - that's £2,880 net per year – for the first 18 years of their life, then they could have a pension pot of £1.5m *. That’s worth having (although you should note that the real value would be less due to inflation during their lifetime).

There are potential Inheritance Tax advantages for you, too, particularly if you are older (perhaps a grandparent), since that amount fits into your annual allowance for gifts of £3,000. However, if you have more than one grandchild you have to make sure that you live at least seven years after the final contribution is made to take full advantage.

* Assumptions: no further contributions after age 18, constant growth rate of 5.5%, retiring at age 68, no changes to tax regime

3. Child Trust Fund
Children born between 1st September 2002 and 2nd January 2011 were given a voucher for £250 to invest in a CTF. Although new CTFs are not possible, existing ones can still be added to each year by other people (like grandparents) up to £1,200. CTFs are tax-free like ISAs, and the money is available to the child at 18. 

4. Children’s Bonus Bonds
National Savings & Investments provide this tax-free investment and it’s for a 5 year fixed term. For the interest rate for the current issue see NS&I Children's Bonus Bonds.

5. Trust Arrangements
Various types of investment in trust are possible, including “Bare” (where the child is entitled to the value of the investment at 18), or “Discretionary” (where some control may be retained). Tax treatment is dependant on the type of investment and needs careful consideration.

Last reviewed 13th October 2011