Money for baby from Grandma

d5f8g2

My 71 year old mum very kindly wants to give my 1 year old baby £20,000.

Obviously conscious of the 7 year rule and tax etc, where's the best place to put it? We don't want to let the baby have access to it til the age of at least 18.

Is the best place in a trust fund? In a savings account?

Thanks very much.

edinburgher

A junior ISA would seem to be a good fit, although the generosity of the gift means that it will take several years to pay it all in.

• No tax on interest or investment growth
• Child can't touch it until 18

d5f8g2

Thank you. I think my Mum is conscious of getting it to her asap all in one go though.

Mojisola

I hope your baby grows up to a very sensible 18 year old - £20,000 plus all the interest could get blown in a very short time otherwise.

d5f8g2

Yes, the idea is to just get it out of my mum's name and start the 7 year clock ticking and put it somewhere for the baby's future.

evenasus

d5f8g2 wrote: »

Yes, the idea is to just get it out of my mum's name and start the 7 year clock ticking and put it somewhere for the baby's future.

Unless your mother's estate is worth over £325K there will not be any inheritance tax due.

xylophone

Your mother wishes to make an immediate lump sum gift to your daughter.

You could start with the JISA - open the account and have grandma draw a cheque for £4000 in favour of your daughter that can be paid in immediately.

See

https://www.gov.uk/junior-individual-savings-accounts/overview

http://www.moneysavingexpert.com/savings/junior-isa

If you should happen to have an ISA of your own with Halifax(or are prepared to open one) 4% is available.
http://www.halifax.co.uk/isas/cash-isas/junior-cash-isa/

The rest of the money can be held in bare trust in your daughter's name and gradually added to the ISA if you wish.

You might for example use the smart limited access account from Nationwide making the one withdrawal at JISA time.
http://www.nationwide.co.uk/products/savings/smart-limited-access/features-and-benefits

Be aware that the JISA can be invested in cash or in stocks and shares or in a mixture of the two.

You may feel that an investment in stocks and shares for at least part of the cash would be a wise decision as your daughter is so young and shares tends to outperform cash over long periods.

Be aware that the child has the right to control of the JISA at age 16 and access at age 18.

Money held in bare trust will come under the absolute control of the beneficiary at the age of 18, (16 in Scotland).

http://www.hmrc.gov.uk/trusts/types/bare.htm

You might choose to invest the balance (or part thereof) in a stock market based investment from the outset (rather than all in cash).

You might consider an investment trust held in bare trust - exampleshttp://www.sit.co.uk/private-investors/products/stockplan-a-flying-start

http://www.bailliegifford.com/documentgateway.aspx?_id=3A39B056-DE6E-474E-870C-3DB1B9BB88F3&disclaimer=ok

Hargreaves Lansdown offer both JISA and bare trust.

https://www.hl.co.uk/free-guides/investing-for-children

Remember to keep a record of the source of the funds - a signed dated letter from grandma would suffice.

If grandma is uneasy about unfettered access at 18, there are other types of trust but administration and tax treatment is more complex.

http://www.hmrc.gov.uk/trusts/types/

d5f8g2

The estate is worth over £325k.

Thanks so much for the detailed response. Sounds like it should be spread about.

xylophone

The estate is worth over £325k.

See http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

concerning spouse exemption.

mike88

The OP needs to do some research on the inheritance tax rules as implied earlier as if her father has died (and was at the time of death married to her mum) the IHT limit will be £650k.

SW17

In addition to the good advice given above, your mum can make gifts of up to £3k per year (in total to all beneficiaries) without attracting any IHT. The 7 year rule does not apply to these gifts, they are exempt. If she's not making any other large gifts, she could use this for the next 3 years to give almost half the money, and give the rest now under the 7 year rule.

As xylophone points out, it's a good idea to keep a record of what was given and when, so it's clear what is exempt or not when the time for probate comes (even, hopefully, after more than 7 years).

Just FYI, in addition to the £3k, an unlimited number of gifts under £250 total per individual beneficiary per year are also allowed, as long as they are not given to anyone who is included in the £3k.