Is it better to give money direct to grandchildren, or give the money to children?

bert4545

We have two children (both adults with children). We want to give money to our grandchildren. It would be easier for us to give the money to our children, so that they can pass it on to their children, but i think I heard it is better to give the money directly to the grandchildren. Is this correct? Why?

jim1999

Usually comes down to inheritance tax (if it's a big amount) or tax on interest.

The latter is why I've had grandparents give bank transfers directly to the children.  If I give my kids money, and it earns over £100 per year in interest, it's taxable as if I've earned the interest.  If grandparents give it to them, that doesn't apply - so they won't pay any tax on the interest they earn.  Personally, I keep completely out of the loop on any cash transfer to the children so that no-one could come back later and claim that it's my money.

EthicsGradient

This has to be down to individual circumstances. How old are the grandchildren, may there be more grandchildren yet to be born, if young adult grandchildren, do they all seem responsible enough (can they all be treated the same?), what are they (and your children's) current or foreseeable needs, and so on.

Keep_pedalling

If it goes via their parents then any interest over £100 is subject to income tax payable by the parents, unless they deposit it in a JISA. 

bert4545

There seems to be no prospect of further grandchildren. You have all explained the reason for giving the money directly to the grandchildren. It's a way of stopping parents avoiding paying tax on the interest their savings might get if they kept them in their own accounts. Thanks to all.

JamesRobinson48

jim1999 said:

Usually comes down to inheritance tax (if it's a big amount) or tax on interest.

The latter is why I've had grandparents give bank transfers directly to the children.  If I give my kids money, and it earns over £100 per year in interest, it's taxable as if I've earned the interest.  If grandparents give it to them, that doesn't apply - so they won't pay any tax on the interest they earn.  Personally, I keep completely out of the loop on any cash transfer to the children so that no-one could come back later and claim that it's my money.

Yes, but in OP's case the "children" are adults with their own offspring. Granted, the HMRC guidance on this topic doesn't define the words "child" or "children". However from the context I assume "child" means a person who has not yet attained adulthood. Therefore I don't think the £100 interest rule applies in the situation described by OP.

https://www.gov.uk/savings-for-children

masonic

JamesRobinson48 said:

jim1999 said:

Usually comes down to inheritance tax (if it's a big amount) or tax on interest.

The latter is why I've had grandparents give bank transfers directly to the children.  If I give my kids money, and it earns over £100 per year in interest, it's taxable as if I've earned the interest.  If grandparents give it to them, that doesn't apply - so they won't pay any tax on the interest they earn.  Personally, I keep completely out of the loop on any cash transfer to the children so that no-one could come back later and claim that it's my money.

Yes, but in OP's case the "children" are adults with their own offspring. Granted, the HMRC guidance on this topic doesn't define the words "child" or "children". However from the context I assume "child" means a person who has not yet attained adulthood. Therefore I don't think the £100 interest rule applies in the situation described by OP.

https://www.gov.uk/savings-for-children

The scenario was probably the grandparents giving to their children (the parents) to give to their children (the actual children), where interest (>£100) would be taxable income for the middle generation.

Though I do like the idea of elderly parents giving to adult children if they had available tax allowances. But as you say, probably not an open loophole.

SevenOfNine

We opened 'child' savings accounts as trustees for our 2 young grandsons & paid in regularly. Though they (& their parents) knew about it they never once asked for any, never asked how much or wanted their own access to it.

When oldest was 16 last year we closed the a/c & trans to his bank £6500, it's been a year & he still hasn't touched it! The younger one gets his later this year. We genuinely don't mind if they choose to squander it. 

We also opened Virgin Headstart a/c's for them, again as trustees. I don't think those are available any more & not sure if they've been replaced with something else? Interest has been steady around the 5% level.  It was lump sum inheritance we did not want, so did a deed of variation.

What you do depends on how much & whether you want them to access it........or not! We knew we were dealing with financially responsible parents & so are their children. 

Virgin have just transferred & closed the a/c there of the oldest, he's 17 this month, over £62,000 has just dropped into his bank a/c. You have to be mindful of that as well, the age you have no choice but to hand it to the 'child' if you are trustee, you really have to be very confident in the financial upbringing of the parents & their children.