Posted on: 12th December 2019
A financial gift may not seem the most thrilling idea, but it is something your children will certainly be grateful for in the future. Considering the latest trend in sustainability, a financial gift to your child is something that will grow and leave them with more over the years. But what are the best financial gifts for your children?
Though it may not seem a glamorous gift in your child or grandchild’s eyes, they will thank you later on in life. Children have an annualallowance of £3,600, just like any other earner. Helping them to save in their early years can give them a vital head start for the future.
A parent or grandparent can invest up to £2,880 a year. The state then tops this up by £720 thanks to tax relief. The returns on this would also grow tax-free.
Since the minimum purchase was reduced to £25 in February, premium bonds are now a more affordable choice. What’s more, any adult can buy premium bonds for a child now, not just parents. So, whether you’re an aunt, uncle, grandparent, or more, you can gift this to whoever you wish.
There is a month’s delay before bonds are included in the draw, which means the first chance of winning after buying in December will be February. Prizes range from £25 to £1 million every month, with the average prize rate equating to 1.4 per cent. However, this will vary as it is a lottery. The good news, however, is that you will never lose your stake and the money can be withdrawn at any time!
Shares with a Junior ISA
These are accounts for those under the age of 18 that allow up to £4,368 to be saved/invested per tax year, with all returns free from tax. These funds cannot be accessed until the child turns 18 and could help them gain financial sense. For example, you could buy shares in your child’s favourite video game companies as a way to introduce them to the world of investments.
For young adults, a Lifetime ISA (Lisa) offers a financial boost. Eligible to those aged between 18 and 40, the Lisa is there to create adeposit or extra savings. Young adults can invest up to £4,000 each tax year as either investments or cash until they turn 50. The government will also top up these contributions by 25 per cent. However, this won’t be as surprising a gift as the ISA must be opened by whoever’s name is on the account, even if someone else is paying into it.
Gifts can be made up to £3,000 on an annual basis without tax implications. On top of this, small gifts of up to £250 each can be made without tax implications. Remember, any cash gift made above these annual exemptions may be liable to inheritance tax if you die before the 7 years is up.
A bare trust to be transferred at 18
An alternative choice is a bare trust. This is a legal arrangement where the investments are held in the name of a trustee but benefits the child who has the right to all the capital and income from the trust.
In terms of tax benefits, any assets such as money or investments are put into a bare trust, they are taxed as though they belong to the child. This means there will be little or no tax to pay on any income or gains.
Unlike some accounts for children, there are nolimits and the money can be withdrawn at any time, as long as it benefits the child, and the child gets control at age 18 (16 in Scotland). If the money has been given by a parent and the income is above £100, it is taxed as belonging to the parent. This is why it can be a useful place for other family members to invest.
Choose the best financial gift for your child (and yourself) with.
If you want to give your child or a child in your family a financial gift that will benefit them in the future, or you want to gift yourself with a smart financial plan, Haven IFA is here to help. We can further explain these options and more, so get in touch to find out more about our services.