As long as you are comfortable with your grandchildren having access to the capital invested when they reach their eighteenth birthday, then a Bare Trust is a great way of gifting money whilst retaining control over how the money is invested.
Any gift into the trust is classed as a Potentially Exempt Transfer (PET) and therefore there is no immediate tax to pay. Provided you survive seven years, the whole gift will be outside of your estate.
Investment Bonds are often considered to be a good vehicle for investments within a trust as they are non-income producing.
When making the investments into a Bare Trust you need to consider the fact that the beneficiary will be subject to tax on any income and capital gains. The beneficiaries are unlikely to be utilising their personal allowance or capital gains tax allowance, which therefore makes collective investments attractive as capital gains tax in excessive of the annual exemption (currently £10,100) will be suffered at 18% as opposed to 20% within an investment bond.
However, if your grandchild is a non UK resident an Offshore Investment Bond may be appropriate. This is because the Investment Bond would not be subject to UK corporation tax on either income or gains and the fund benefits from gross roll-up.
Time apportionment relief may be available to proportionately reduce any chargeable gain where the beneficiary has been non-UK resident for any period during the term of the investment.
