Investing money for your grandchildren? Then beware of the tax man!
Many grandparents choose to set aside money for their grandchildren’s future by paying in to savings accounts or junior ISAs. What they may not know, however, is that there are limits on how much can be invested on their behalf before tax becomes an issue.
As of June 2015, the ‘annual exemption’, which is the maximum amount that can be given away each tax year without potentially having to pay Inheritance Tax, is £3000. An important caveat is that this threshold is for all monetary gifts, and not per person. This means that if you have more than one grandchild, and you plan to invest some money for all of them, then it is the combined figure which is used to calculate any Inheritance Tax.
One small piece of good news is that unused ‘annual exemption’ can be carried over from each tax year to the next, although the maximum exemption is £6000. There are also some instances where giving someone money doesn’t count towards the ‘annual exemption’, such as wedding gifts (up to a certain value) and gifts up to £250 per person.
More details on Inheritance Tax and these exceptions can be found on the HMRC website here.