If you’re keen for your grandchildren to be more financially secure in the future, then investing on their behalf and establishing an interest in money might be important to you. And if you’re living overseas and don’t have the opportunity to see your grandchildren regularly there may be even more incentive for you to provide for them financially. Thankfully, there are a number of ways in which you can save for your grandchildren sensibly and tax-efficiently whilst you’re abroad.
Effective investment strategies to save for your grandchildren
There are a range of investment options to consider if you’re keen to save on behalf of your grandchildren. You may prefer to pay a regular amount each month, or want to set up more complex investment plans involving stocks and shares. Although cash or savings accounts may seem like good choices, it’s worth bearing in mind the effect of inflation which can eat away at the capital over time. As a result, your money might not go as far as you’d like it to in the future.
Junior ISAs & SIPPs
Just like adult ISAs, junior versions allow you to put savings to good use, tax efficiently. A Junior ISA will need to be opened and managed by a parent or guardian, but grandparents can then make contributions on either a regular or ad-hoc basis, perhaps for birthday or Christmas gifts, even whilst living abroad. Some rules do apply and there is an annual allowance, which currently sits at £9,000. Your grandchildren will be able to access their ISA funds from the age of 18, so it might offer a nice nest egg for their first car, home or to support them during university years.
SIPPs offer a more long-term option, enabling you to save ahead for your grandchildren’s retirement, and boost the investment with contributions from the UK government. Any money invested in a Junior SIPP can’t be accessed until your grandchild is aged at least 55 (although it’s likely this limit will increase given life expectancy; the age is already set to rise to 57 from 2028). Contributions are capped at £3,600 a year currently, and that includes the 20% payment which the UK government adds automatically.
Although trusts might be a familiar concept, one of the most simple options, and one which is particularly useful when it comes to grandchildren, is a bare trust. Here assets are held in your name for your grandchildren, who can access them when they reach the age of 18. There are a number of benefits of bare trusts. They are tax-efficient, with all investments generally outside of the Income and Capital Gains Tax net.
You can also open, contribute and manage any investments being held in the bare trust on behalf of your grandchildren. They are very flexible; you can contribute as much as you would like or are able to, so bare trusts can be particularly helpful if you have one eye on your own tax planning. And helpfully any funds can be accessed at any point, as long as they are of benefit for the child, so if you would like your investments to be used to pay for school fees then there is scope to do so.
There are some other types of trusts which can also be worth considering including loan bare trusts which allow you to gift the interest from the trust to your grandchildren and discretionary trusts which can be used to hold some of your assets with the knowledge they will be passed onto grandchildren in the event of your death, free of Inheritance Tax.
One caveat applies to bare trusts – while as grandparents you can contribute without tax becoming an issue, things can unravel quickly if the children’s parents get involved. If a parent contributes more than £100 to a bare trust it will be treated as the parent’s income for tax purposes.
Company stocks and shares
Investing in stocks and shares can be a worthwhile option for grandchildren. This is because they can be more relatable, offering your grandchildren the chance to invest in something a little more tangible. Particular companies might be more familiar to them too and create some interest especially if they get involved in tracking performance. Simply put buying shares in Amazon, Meta/Facebook or British Airways, or picking stocks in a sector which particularly interests your grandchildren, might offer a fascinating activity for both you and them.
Once those investment seeds are sown, you may want to explore moving investments into funds which offer a broader portfolio of shares, and have the option of a fund manager who can make decisions, or provide ongoing advice. Again, this can kickstart an interest in investing at an early age.
Exchange Traded Funds
Exchange Traded Funds, or ETFs, can be a useful vehicle if you’re investing for grandchildren. They are in essence ‘pots’ consisting of shares in hundreds and even thousands of companies across global markets. ETFs tend to track an index, such as the FTSE 100, and are bought and sold on the stock market. They tend to be inexpensive to run, with any risk highly spread. If you’d prefer not to actively manage an investment portfolio, but like the idea of a long-term investment option for your grandchildren then a low-cost global tracker ETF may be a worthwhile consideration.
Investing with The Fry Group
If you’re keen to get your grandchildren interested in saving and investing, try to involve them in decisions, keep in touch with them to let them know how their investments, shares or funds are doing and answer their questions – it might help foster a new dynamic to your relationship with them too.
The Fry Group has worked with families across the world, and across generations. Our teams can help and support your plans if you are keen to explore what investment options are best for you and members of your family, get in touch today.
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