My parents want to save for grandchild

[BeccaBean]

I have a DC aged 9 and my parents would like to put away £100-£150 per month for her to have when she is 18. They suggested opening a cash savings account for her but for 9 years+, I explained to them that she'd almost certainly get a much better return invested in a stocks and shares isa, invested in a global index tracker, which they're open to.

I only found out after speaking to them, that children can only have one junior stocks and shares ISA, different to adults. She already has a stocks and shares ISA that we pay into for her each month and it's with Vanguard, who don't accept payments from more than one account.

They could pay the money to me and I could increase the overall monthly amount but they would really prefer a separate account - not a trust issue, but I think they would like to watch it (hopefully) grow and know that that is what they are giving her.

I think the only options are:

• them to transfer money to me to pay in to her existing S&S isa per above
• i move to a different provider that accepts payments from more than one account but not sure its worth the hassle and they still couldn't separate what they've contributed vs us
• open a cash ISA instead but for a not great return given interest rates likely to fall further shortly
• open a general investing account (if you can do that for a child) as the return isn't likely to go over the CGT annual exemption although it might
• they hold an investment for her in their names but if one of them needs care home fees in the future it would be counted and she might never get the investment.

They are in their early 70s, so possible they won't even be paying in for a full 9 years (although thankfully health ok at the moment).

Have I missed any options? WWYD?

Thanks!

Yes I do that for my nephew. Parent had to open the account abs give you the code. But now anyone can pay in (was just grandparents first plus parents)

Are there rules about how much a grandparent can give away like this?

Would there be IHT implications?

We moved away from Vanguard for this exact reason...

Martin Lewis said premium bonds weren't necessarily the best option for savings on Radio 5, live with Matt Chorley

There have never been any ‘rules’ about how much you can give away. We are still, until this government decides it knows better, free to do what we like with our own money.

Gifts of over £3k could be subject to IHT for the estate of the person giving them, but if they are made from income then there’s no IHT implication. If the gifts come from depleting capital then they will be included, subject to the 7 year sliding scale, in the estate for IHT purposes on the death of the person giving the gifts.

Remember that phrase about looking a gift horse in the mouth? If I were you I’d stop giving advice, say ‘thank you so much for such a kind and generous gesture’ and let them go with their original plan.

To be honest with £100 minimum a month and you already having a slightly riskier savings scheme (I have this too, different provider!) I’d just take your parent’s original offer. I can see where they are coming from, they want to see how much it actually gives your child. Adding to yours doesn’t allow for that, it will be a joint lump sum.

Let’s face it, either way your child is going to be pretty well off when she turns 18 anyway. Let your mum and dad see the actual amount rise, it’s a very generous offer.

I’ve had 3 of these stocks and shares savings and the first one didn’t really do so well, the next two did/are. Remember they are not guaranteed to be more than the usual isa, for security (who knows what’s going to happen in this world!) it may be wise to have one in the more conventional savings scheme.

If it really needs to be in a separate account, then that rules out an ISA as you say. But you are wise to look at investing rather than cash for such a long time period, and this can easily be done for the child via a bare trust.

In a bare trust, the funds will be taxed as the child’s, and assuming the income and gains are not significant, they should be wholly or largely within their personal allowance for income (£12,570), or annual exemption for gains (£3,000). So still effectively growing tax free. After many years, the CGT exemption may possibly not be enough, but should be fine if you keep an eye on the gains and rebase within the exemption occasionally.

As the child is too young to own the asset, the grandparents can set up the account in their own name. Often a designation (simply just a name or initials added to the account) is used to identify this pot as separate to their own funds. But note that a declaration of trust is also needed, the designation is not enough to create the trust by itself. Some investment platforms have simple bare trust forms you can use, or a clear signed and dated letter of intent can be enough.

The grandparents would be the trustees and must manage the funds in the child’s best interest - they can’t dip back into the pot themselves! (Or this could all be done in a similar way via gifts to yourself if a bit much for them to manage).

From the grandparents point of view, if IHT is a concern, these gifts may be immediately outside their estate under the normal
expenditure from income exemption, but they need to keep details of income and expenditure as per the form IHT403. Otherwise they will fall outside IHT after 7 years (broadly speaking…).

This is very standard, and simpler than I’ve probably made it sound. The big issue is, as others have said, that the child becomes absolutely entitled to the capital and income on age 18, and can legally blow the lot!

Yes you've missed mentioning any form of gratitude. Let them do it their way. Also unessesary is your cheerful thought for the future considering 'they are in early 70s!!

Premium bonds? And there’s always the chance of winning a million!

How have you managed this and what’s the account please?

I’m with Foresters Friendly but they no longer do this type of account 😞 sorry @bonsi