Five ways to help loved ones through tough financial times

Many people have watched loved ones and family members go through tough financial times over the past few months as the coronavirus crisis has affected people’s jobs and pay.

A little rainy day money can make all the difference. Picture: iStock/PA
A little rainy day money can make all the difference. Picture: iStock/PA

But, if you are in a position to do so, there may be ways you can help ease the pressure for them, both in the shorter or longer term.

Of course, not everybody is in a position to help with large money handouts. Even smaller gestures – like chipping in with a shopping bill – could make a big difference in the short term to those in a very tight spot. But for families and individuals who are in a more comfortable financial position, you might be thinking about how you can help a loved one in the longer term too.

Here are some suggestions from Shona Lowe, private client and corporate director at 1825, the financial planning arm of Standard Life.

Pay into a loved one’s pension for them

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You can contribute to someone else’s pension, regardless of whether they are working or not. This can be a really effective way to give a financial boost to a non-working spouse or partner, or to children or grandchildren.

Taking this action could provide them with more for the future or ease the immediate financial pressure on them by allowing them to reduce their own current pension contributions.

Don’t forget though that this is a gift, so once you have made it, you would not be able to get back what you have paid into their pension.

Give a gift

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Small gifts made by one person to another, such as Christmas and birthday presents, will not generally result in an inheritance tax bill when the gift is made. But it’s worth remembering that some will come with a “seven-year clock”.

This means that if you die within seven years of making the gift, inheritance tax may have to be paid on it. Because of that, it’s worth looking at the gifts that are exempt from that.

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is called an “annual exemption”. You can carry any unused annual exemption forward to the next year – but only for one year. Each tax year, people can also give away wedding or civil ceremony gifts of up to £1,000 per person.

Pay into a Junior Isa

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A Junior Isa is a savings account for children. They can be held in cash, or stocks and shares, or a combination of the two.

This is a tax efficient way for parents and grandparents to make one-off or regular gifts to younger children, with the peace of mind that the child won’t be able to take the money out until they are 18 years of age.

In the 2020/21 tax year, the savings limit for a Junior Isa is £9,000. If you don’t think the child will be able to properly manage the money invested when they turn 18 though, you could consider an alternative method of gifting, perhaps looking at using a trust as a longer-term option.

Set up a trust fund

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If the loss of control over money once it has been gifted makes you feel unsettled, or you want to make sure people don’t have access to your gift before you think they’re ready to handle it, then don’t ignore trusts.

Trusts can help you protect money, maintain some control and are often a key part of an overall inheritance tax and succession planning. These can be particularly appealing to grandparents looking to set aside funds to support children and grandchildren as and when it’s needed over the longer term.

There are lots of different types of trust that each come with their own rules. Consulting a specialist will help you to ensure you choose the one that best suits your and your beneficiaries’ future needs.

Keep your will up to date

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Because money and wills remain a taboo topic for many, it’s not surprising research has found that 54 per cent of UK adults don’t have an appropriate will. Either they’ve never had one or their current will is out of date.

Even if it feels uncomfortable, having the right will in place, and keeping it up to date as circumstances change, is really important. Doing so can ensure you pass on as much as possible in the way you want, and as tax efficiently as possible.

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