{"id":2207,"date":"2018-08-17T06:32:35","date_gmt":"2018-08-17T06:32:35","guid":{"rendered":"http:\/\/www.fpgonline.co.uk\/?p=2207"},"modified":"2023-09-19T10:41:47","modified_gmt":"2023-09-19T10:41:47","slug":"important-advice-for-generous-grandparents-the-satisfaction-of-giving","status":"publish","type":"post","link":"https:\/\/www.fpgonline.co.uk\/index.php\/important-advice-for-generous-grandparents-the-satisfaction-of-giving\/","title":{"rendered":"Important Advice For Generous Grandparents \u2013 The Satisfaction Of Giving"},"content":{"rendered":"<p>&nbsp;<\/p>\n<p>Rising property prices and the increasing cost of further education mean that today\u2019s young adults face a much greater financial hill to climb than previous generations. And increasingly it&#8217;s grandparents who are coming to the rescue.\u00a0The Council of Mortgage Lenders* suggest that the proportion of first time buyers getting help from parents or grandparents has risen from around 30% in 2005 to more than 50% in 2014.\u00a0Sharing wealth between generations not only helps grandchildren pay off student debt or get a foothold on the property ladder, it can also help to reduce the grandparents\u2019 IHT liability.\u00a0But thought needs to be given on the best way to pass on wealth and how to hold and invest it until it&#8217;s needed.<\/p>\n<p><strong>The satisfaction of giving<\/strong><\/p>\n<p>Many grandparents often leave money in their wills for their grandchildren. But by making that gift during their lifetime, they get to see the benefit it has on their family on many different levels:<\/p>\n<ul>\n<li>They will have played their part in their grandchildren\u2019s futures;<\/li>\n<li>A financial burden on their own children will have been be lifted; and<\/li>\n<li>At a personal level, they may have made IHT savings.<\/li>\n<\/ul>\n<p>Grandparents may insist on an element of control over who benefits from their gift and when. They may also want a say in where it&#8217;s invested.<\/p>\n<p>\u2018<strong>Controlling\u2019 the gift<\/strong><\/p>\n<p>There may be an understandable concern about giving grandchildren too much too soon. Grandparents may want to have some control over when money is handed over.\u00a0\u2018Designated accounts\u2019 have been a way of earmarking money in unit trusts\/OEICs for a grandchild without them actually receiving it. Funds can then be transferred to the grandchild at the appropriate time.\u00a0The downside to this is that income and gains continue to be assessable upon the grandparent unless the designation is irrevocable. The opportunity to use the grandchild\u2019s income tax and CGT allowances would be missed and the asset remains in the grandparent\u2019s estate for IHT.\u00a0Making a gift into trust may ease the fears of giving large sums to grandchildren before they have sufficient financial maturity and provide grandparents with the control they seek.<\/p>\n<p><strong>What type of trust?<\/strong><\/p>\n<p>Absolute (Bare) trusts, including irrevocable designated accounts, are the simplest form of trust. But they&#8217;re also the most restrictive. The beneficiaries cannot be amended if circumstances change and they could demand the trustees hand over the money once they reach 18.\u00a0But there are tax advantages of using absolute trusts. The initial gift is a potentially exempt transfer with no immediate IHT. Income and gains will be assessed upon the beneficiary meaning they&#8217;ll be able to use their own allowances and tax rates. And the gift will be outside the grandparent\u2019s estate for IHT after 7 years.\u00a0Discretionary trusts provide greater control over when and how money is distributed and they&#8217;re typically flexible enough to allow any future grandchildren to benefit.\u00a0In contrast to the absolute trust, the initial gift is a chargeable transfer, but there will be no immediate 20% IHT charge payable provided the grandparents have enough nil rate band available. This means a joint gift of up to \u00a3650,000 can be made without a charge.<\/p>\n<p>Control within trusts normally comes at a price. Discretionary trusts pay income tax at the trust rate of 45% (38.1% for dividends) and CGT at 20% with a lower annual allowance too. But with the right investment wrapper, that need not be the case.\u00a0Offshore Bonds Offshore bonds score top marks here. During the investment period, the bond suffers no UK tax on income and gains, and tax is deferred for bond owners until money is withdrawn and a chargeable event occurs.\u00a0This simplifies matters for trustees of a discretionary trust as they have no income or gains to account for during the investment term. And when the money is needed, policy segments can be assigned to the grandchild once they&#8217;re over 18, who will then become the person taxed on subsequent surrender.<\/p>\n<p>Sometimes savings priorities change and funds may be needed for something other than house purchase &#8211; for example, to pay for school fees. If this is before age 18, the trustees could cash in the required amount from the bond. In doing so, the settlors of the discretionary trust (i.e. the grandparents) would be taxable on any gain at their rate. If they are deceased, the gain is taxed at the trust rate, currently 45%.\u00a0However, it&#8217;s also possible to overcome this and have the gains taxed on the grandchildren at their (lower) rate if the trustees complete a deed creating an absolute interest for the child in part of the trust fund, before surrendering that part. The gain will then be assessed on the child, using the child\u2019s allowances.<\/p>\n<p><strong>OEICs\/UTs<\/strong><\/p>\n<p>An OEIC\/UT portfolio held in a discretionary trust is unlikely to be as tax efficient as an offshore bond, particularly if bond profits can be extracted tax free. This is because trustees will still have to pay tax on accumulated income at the trust rate (45% and 38.1%), and possibly CGT (at 20%) should gains arise above the trust annual exempt amount. The same income and gains can roll-up gross if funds are held in an offshore bond wrapper.<\/p>\n<p><strong>Here to help and advise you<\/strong><\/p>\n<p>With 25 years\u2019 experience helping individuals, families and businesses to place their financial affairs in context with their future goals and aspirations, The Financial Planning Group are here to provide a simple, structured, disciplined and reviewable planning service. We will change the fundamental relationship people have with their money to give them confidence and clarity in their own future.<\/p>\n<p><strong>If you have any questions concerning, Trusts, Gifts, Inheritance\u00a0Tax Planning, or to ensure your family are fully protected, please call Tim Norris on 0800 731 7614 and we would be delighted to arrange a meeting at our offices in the heart of Teddington.<\/strong><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; Rising property prices and the increasing cost of further education mean that today\u2019s young adults face a much greater financial hill to climb than previous generations. And increasingly it&#8217;s grandparents who are coming to the rescue.\u00a0The Council of Mortgage Lenders* suggest that the proportion of first time buyers getting help from parents or grandparents [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-2207","post","type-post","status-publish","format-standard","hentry","category-news"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Important Advice For Generous Grandparents \u2013 The Satisfaction Of Giving - The Financial Planning Group<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.fpgonline.co.uk\/index.php\/important-advice-for-generous-grandparents-the-satisfaction-of-giving\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Important Advice For Generous Grandparents \u2013 The Satisfaction Of Giving - The Financial Planning Group\" \/>\n<meta property=\"og:description\" content=\"&nbsp; Rising property prices and the increasing cost of further education mean that today\u2019s young adults face a much greater financial hill to climb than previous generations. 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