[Trinny]

my granddaughter has inherited £40000. She is 16. Where can she put it?

[Richard Berry]

This is a great question as an inheritance can help set children up for life, if invested wisely. We put this question to Charlene Young, a senior pensions and savings expert at AJ Bell, who has given these suggestions:

“Although a child can be named as a beneficiary in a will, this doesn’t always mean they can automatically take ownership of the money when the person who made the will dies. The minimum age is usually 18, although can be 16 in Scotland, where the age someone reaches full legal capacity is lower.

“You’ve mentioned that your granddaughter is 16 and has received the money, so it might be that she lives in Scotland and there are no extra restrictions placed on her by the will, such as the money must be held in trust for her benefit until a later age, or that it must be used for a specific purpose. If a trust is involved then her options will be limited by what the trustees decide, as managing the money for her will be their responsibility.

“Some people worry about young people suddenly taking control of a large sum of money, but this isn’t a view I share. Young people face tough financial conditions, particularly when it comes to paying for higher education, or getting onto the property ladder. A kick start from an inheritance could take a huge weight off their mind and open many different doors to opportunities they might have felt were closed off to them. Inheriting money can come with mixed emotions, but it’s likely that being left a monetary gift will also ensure it is used wisely.

“The main things to consider for your granddaughter are what she’d like to use the money towards, and what that future timeline looks like. That might be university education. While students who are resident in Scotland will generally be eligible for free tuition, there are still living costs to consider which could begin in just two years’ time.

“Even if university isn’t on the cards, anything she’d like to use in the next five years should really stay in cash. Although investing gives money the best chance of growing over and above inflation in the long term, the ups and down of markets don’t make it a good choice for shorter time frames.

“It’s worth pointing out that your granddaughter will have her own personal allowance, meaning she can earn up to £12,570 tax-free a year, plus an extra £1,000 in tax-free interest on any non-ISA savings.

“As interest rates are falling, it’s crucial to shop around for the best rates on cash. Comparison sites can help filter accounts for under 18s, from easy access to fixed term or savings bonds. These might pay higher rates of interest, but this will be in exchange for not having access to the cash for the time frame specified. Most government-backed accounts from NS&I are also available to over 16s, including Guaranteed Growth Bonds and Premium Bonds. Just a word of warning on Premium Bonds – while many people like the thrill of the chance of winning a prize, over two thirds of premium bond holders have never won anything and would have been better off in a general savings account.

“A Junior ISA is often a popular choice, although the allowance for these is £9,000 per tax year. Junior ISAs are tax-free accounts for under 18s, where the money is locked up until their 18th birthday. At age 18, the account converts to an adult ISA.

“There are cash and investment versions available – and while they must be set up and managed by a parent or guardian, banks will support 16- and 17-year-olds with setting up and managing the cash version.

“If the goal is to get on the property ladder in five years or more, then investing might help her get there more quickly than cash, but returns are not guaranteed. Unfortunately, the investment options are quite limited until your granddaughter turns 18, other than stocks and shares Junior ISAs, which I’ve mentioned. From age 18, she’d be eligible for adult ISAs, including the Lifetime ISA, which comes with a 25% government bonus on the money you pay in. The Lifetime ISA allowance is £4,000 with up to £1,000 to come from the government. They do come with some tight eligibility rules though, especially when it comes to using them for a first UK home purchase, so if a property is not the priority, a standard ISA might be a preferred option.”

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