You’ve probably heard of the bank of Mum and Dad but you may be less familiar with the bank of Nan and Grandad.

According to Age Partnership over 55s now hold more wealth in their homes than the GDP of Italy. That’s £1.5 trillion!

It’s not just property wealth either, earlier in the year The Telegraph reported that pensioners are earning significantly more now than in 2007 and nearly half of their income comes from private pensions and investments.

Now to some people this may be obvious, pensioners have lived longer and therefore have had more time to build up savings and this could be true. This article isn’t supposed to debate the merits of which generation has had it better or been better with money. The real problem here is that as pensioner wealth gets bigger so does the potential tax bill on their death.A large building symbolising the bank of nan and grandad

The tax bill due on the bank of nan and grandad

You see once a person’s wealth reaches a certain point it may be subject to Inheritance Tax on their death at a rate of 40% and this is paid for by the people inheriting. That could be your children or grandchildren.

Most of the older clients I meet are very happy in retirement, they have planned their finances well and have all the money they are ever going to need to survive. So it seems a real shame that a massive chunk of these hard earned savings could be lost in tax to the government. Haven’t the government had enough?!

Now if you are in this situation there’s probably a good chance your children are already well on their way to becoming financially successful themselves as they have learnt good practices from you. They probably don’t need your money and if you do decide to give them money now you may be adding to their own Inheritance Tax problem.

Your grandchildren on the other hand might just be starting out. We’ve all heard the stories about how much the world is changing and how hard it is for younger people to get jobs and get on the housing ladder. Whether you agree with these stories or not, wouldn’t you rather see your money that you don’t need, put to good work now rather than dying with too much and the government taking nearly half?

5 ways to use the bank of nan and grandad

#1 Make regular gifts

  • You can gift up to £3,000 each, per year, without facing an Inheritance Tax problem.
  • If you didn’t use last years allowance you can carry that forward.
  • Gifts larger than this during your lifetime could result in Inheritance being paid by the receiver if you die within 7 years.  

#2 Make larger gifts and take out an insurance policy

  • You can cover the potential Inheritance Tax bill with an insurance policy called ‘Gift Inter Vivos’.
  • This can be low cost and only lasts 7 years to cover the gift.
  • However it is dependent on how healthy you are.

#3 Pay into your grandchild’s pension

  • You can pay up to £2,880 a year into a pension for a child if they are not earning.
  • The child will receive tax relief of £720 on top of this meaning the contribution becomes £3,600.
  • Be careful of the gifting rules (see above) if you do this for more than one child.

#4 Set up a Trust fund to maintain control

  • If you want to make larger gifts to your grandchildren but they are either too young to receive it or too irresponsible at this stage to manage it you can manage it for them in a Trust.
  • After 7 years money gifted into a Trust could become Inheritance Tax free.

#5 Use Inheritance Tax friendly investments

  • In recent years more and more investment products have become available that allow you to take advantage of a government relief called Business Property Relief.
  • Once you have held these investments for 2 years and you continue to hold them they are Inheritance Tax free.
  • Perfect for passing on to your grandchildren on your death.

If you would like a 1 hour consultation that doesn’t cost you anything apart from time, then why not give us a call. We will be happy to discuss ways of using your money to provide for your grandchildren so you can give them the best start in life.

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