As a grandparent, seeing your grandchildren struggle financially can be hard. With food costs and living expenses on the rise, it’s natural to want to help. But, despite good intentions, along with it comes a dilemma. Should it be up to their parents to help them out? Or can you offer a helping hand when it’s needed?
It’s common to support younger loved ones, especially during difficult times. In 2023 the total amount lent by the Bank of Mum and Dad will reach £8.1 billion, with the money used for financial support, or to help loved ones onto the property ladder.
But, as budgets become more squeezed it’s becoming more common for the Bank of Mum and Dad to skip a generation, and become the Bank of Grandma and Grandad.
Turning to family for financial support
The last few years have been difficult for a lot of people. But what happens when the going gets really tough financially, and you need a helping hand to see you through? We spoke to Lauren, who found herself having to approach her grandparents for help during these difficult times.
“I’ve been working as a freelancer for a few years now, and often have times where things are a bit slow, that goes without saying.
But that’s nothing compared to what I’ve faced over the past few months. Understandably, budgets have been cut and clients are more wary about hiring. I was starting to really worry about what would happen to me.”
The Bank of Mum and Dad
“I’ve been financially independent since my late teens and have never had to rely on my parents. But this time I felt like I had little choice. Mixing money and family isn’t something anyone does lightly, and it’s never comfortable. I set up a very professional meeting with them to discuss my situation, and to see if there was a way they could possibly help. I didn’t want them to feel like I was asking for a ‘handout’, so I presented a proposal for a loan, which I would pay back in instalments.
It was a blow to realise they wouldn’t be able to step in, but at the same time I appreciated that they probably felt awful they couldn’t help. They did, however, suggest an alternative.”
I turned to my grandparents for support
“Like my parents, my Grandma and Grandad have always been a reliable support system for my brother and I. I know that I can turn to them for anything, so why didn’t I go to them in the first place?
It mainly came down to pride. I felt ashamed that I had to ask them for money. It was an emotional experience. I hadn’t expected a gift – but the relief was enormous. I was incredibly grateful.
I needn’t have worried. My parents already knew my grandparents were going to do this, which I think is why they sent me in their direction in the first place. They knew they were planning on giving my brother and I an ‘early inheritance’ at some point, so they’d felt it was a good time to discuss it.
Once I’d got over the embarrassment of the whole situation, I wondered how my grandparents had felt; whether they’d found it difficult too.
My Grandad, Gerald, explained that they’d worked hard in the past to ensure they had enough tucked away for hard times, or to help family.
“We’ve always been quite careful with money over the years, to ensure we had a nice amount put away for a rainy day,” he said. “I worked as a taxi driver in London for more years than I can remember, working weekends and evenings, all the while working at Royal Mail in the Accounts department. They provide a nice pension.
“When you asked us for help, we were expecting it. We knew things were difficult. We didn’t mind helping at all.”
Grandma Caroline had much the same approach:
“We had been discussing ‘early inheritance’ anyway. During these uncertain times it’s hard for everyone, and the way we look at it, all we have will go to our children and grandchildren anyway, so why not speed things up a bit!”
It’s always important to make sure you’re aware of Inheritance Tax (IHT) and gifting rules. IHT is a tax on your estate (property, savings and possessions), that can apply in your lifetime and after you die. The amount you pay depends on any gifts you make, when you make them, and how much your estate is worth. The standard Inheritance Tax threshold for 2023/24 is £325,000, and the standard Inheritance Tax rate is 40%. The IHT threshold can increase to £500,000 if you're leaving your main residence to your children or grandchildren.
There is normally no tax to be paid if:
- The value of your estate is below the threshold at which Inheritance Tax is applied, or
- You leave everything to your spouse or civil partner, or
- You leave everything to an exempt beneficiary, such as a charity.
You can find out more about Inheritance Tax at gov.uk/inheritance-tax.
“My grandparents made it their mission to set everything up. It’s been an absolute lifesaver. Although they initially wanted the money to be used towards a deposit on a home, they accept that we are experiencing exceptional circumstances, and that I’m going to need some of the money just to live on. They’re hopeful that I’ll be able to start saving something when things start to pick up again.
So instead of the Bank of Mum and Dad, I went to the Bank of Grandma and Grandad, and I fully intend to make the best use of the money I’ve been given. It’s not often that you receive a gift like this, that gives you not only immediate support, but also an insight into how finances can help generations to follow. So I’ll be making more concrete plans for my financial future. And I’m going to set up my own savings account, as soon as I’m able to.”