Helping the next generation: Building a nest egg for your children and grandchildren

Many parents and grandparents want to give their children or grandchildren a strong financial foundation for the future.

Whether it is to help with education, buying a first home or simply to provide greater financial confidence, creating a nest egg can be one of the most lasting and rewarding legacies, and how you go about it can make all the difference.

With recent changes introduced in the Autumn Budget 2024, now is an opportune time to revisit your estate planning and gifting strategies. 

Why Build a Nest Egg?

Starting early when setting aside funds for children or grandchildren gives the magic of compounding time to work. It not only helps cover future costs such as education or getting on the property ladder but also encourages healthy financial habits.

Whether your goal is to gift a lump sum or support ongoing saving, there are several tax-efficient ways to help without compromising your own financial future.

Five smart ways to create a nest egg

Junior ISAs (JISAs)

You can contribute up to £9,000 per year into a JISA for each child, subject to the child’s eligibility. The money grows free of Income and Capital Gains Tax, and the child takes control at age 18. It can be a straightforward, tax-efficient way to save for their future.

Pension contributions for children

It is possible to pay into a child’s pension – up to £2,880 a year, which gets topped up to £3,600 with tax relief. While this is locked away until they reach retirement age, the long-term compounding can be powerful. 

Setting up a Trust

A trust allows you to gift money while retaining some control over how and when it is used. Different types of trusts suit different needs, and they can offer tax planning advantages, particularly in managing future Inheritance Tax (IHT) exposure. 

Making use of annual gifting allowances

You can gift £3,000 per year free of IHT, plus smaller gifts of up to £250 per person to as many individuals as you like. Larger gifts may fall outside your estate if you survive them by seven years.

Investing in your own name for future gifting

If you would prefer to keep assets under your control, consider investing in your own name with a view to gifting later. While this does not reduce your estate immediately, it can provide flexibility while still building value for future transfer.

What has changed in the Autumn Budget 2024?

Recent updates to tax rules are relevant for anyone planning to pass wealth to future generations:

IHT Thresholds Frozen

The nil-rate band remains at £325,000 and the residence nil-rate band* at £175,000, both now frozen until April 2028. 

* residence nil-rate band is available if certain qualifying conditions are met 

Reliefs capped

From April 2026, Business and Agricultural Property Relief will be capped at £1 million, with any excess subject to IHT at 20%. 

Pension inheritance tax introduced

From April 2027, inherited defined contribution pension pots will be subject to IHT. This makes planning around pensions even more important if they form part of your legacy. 

Planning ahead

Making financial gifts and supporting the next generation does not have to mean compromising your own security, but it should be carefully planned. Consider: 

• Reviewing your estate plan to ensure it reflects the current tax landscape 
• Taking advantage of available allowances and exemptions 
• Seeking advice on setting up trusts or investing tax-efficiently 
• Thinking long term when it comes to gifting through pensions or ISAs 

Let’s talk about your legacy

If you are thinking about how best to support your children or grandchildren financially, while managing your estate wisely, we are here to help. 

To discuss your own personal circumstances please contact our Financial Planning team on +44 (0) 330 124 1399 or provide your details via our online enquiry form  

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.