Bank of Gran and Grandad



 

You’ve probably heard of the ‘Bank of Mum and Dad’, but the ‘Bank of Gran and Grandad’ is also open for business – and it's already made total donations of more than £37bn to the grandkids.

A recent survey found that 66% of 5,529 respondents were considering, intending to – or had already given – substantial financial gifts to their grandchildren.

While most grandparents don’t specify what the money should be spent on, one-in-ten stipulate it should go towards a deposit on a house.

Grandparents usually shell out an average £9,365, with London and south-east based grannies and grandads stumping up the largest deposits.

Why is this happening?

Grandparents regard the gift as an early inheritance, with over half saying they would rather see their relative enjoy the money now, rather than wait until they die to leave it to them.

If grandparents remain alive for at least another seven years after the gift is made, it will also escape potential Inheritance Tax liabilities.

Bumping up the size of their grandchild's deposit will also reduce the mortgage they require to buy a property, helping to counter affordability issues.

Where do grandparents get the money from?

Most of the money is coming from cash savings, but some are tapping into the value of their own homes by releasing equity accumulated over the years. On average, they take £33,000 out of their home to give to family.

What are the potential pitfalls?

Unaligned expectations is probably the most common, so it pays to be clear upfront as to whether the money is a loan or a gift. If it's a loan, then taking a few sensible steps to avoid awkwardness further down the line is wise. 

There is also the risk that retirees will leave themselves short of cash to fund their later years.

Gifting could also affect entitlement to benefits, particularly if they might need long-term care in later life.

Finally, gifting could be regarded as a ‘deliberate deprivation of assets’. This means taking cash out of the estate to ensure they qualify for means-tested benefits.

Always seek independent advice to avoid falling foul of regulations.

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