Figures from a recent YouGov poll, published in the Independent, suggest that more than a quarter (27%) of Brits are hoping for cash presents this Christmas.
Cash gifts beat clothing (23%) and “experiences” such as theatre or concert tickets (20%).
While the desire for cash after the struggles of the pandemic is understandable, the current low interest / high inflation climate means that cash gifts might not stretch as far as usual, and money placed in a bank account could quickly begin to lose value in real terms.
For a Christmas gift that will keep on giving in the years to come, consider an investment.
Gifting a long-term investment this Christmas
1. A Stocks and Shares Junior ISA (JISA)
The JISA turned 10 years old in November and continues to be an incredibly tax-efficient way to build a nest egg for a child or grandchild.
A parent or guardian will need to open the JISA account, but once it is open, family and friends can all make contributions up to the £9,000 a year JISA Allowance.
A Stocks and Shares JISA invests in the stock market, with gains free of Income Tax and Capital Gains Tax.
Investing brings added risk but the chance to see higher returns, too. The long timescales involved mean a JISA will have many years to grow and an increased likelihood of riding short-term market blips.
From the age of 16, a child can begin to amend their account, with full ownership from age 18, when their JISA automatically reverts to an adult ISA. The ISA subscription limit is £20,000, which means your child will have a great foundation for continued growth.
2. A pension
While a JISA investment can be fully accessed from the age of 18, pension funds are tied up until a child reaches the minimum retirement age. This currently stands at 55 but will rise to 57 from 2028.
A pension can only be set up on a child’s behalf by a parent or guardian while the child is under the age of 18. Once set up, anyone can contribute to it, up to an overall amount of £3,600 a tax year.
Your contributions will be subject to tax relief at the basic rate, so a £3,600 contribution will only cost £2,800. If those contributing are a higher- or additional-rate taxpayer, they can claim the extra relief through their self-assessment tax return. The claimed amount won’t be added to the pension though.
Once your child enters employment, their Annual Allowance will usually grow to £40,000 (or 100% of their pensionable earnings, if lower). Years of investment growth and compounding could make a massive difference to the amount your child takes into retirement and their financial stability in later life.
Giving the gift of investment can be tax-efficient for you
HMRC gifting rules allow you to give certain gifts each year tax-free. Qualifying gifts will be deemed outside of your estate for Inheritance Tax purposes, even if you die within seven years of making the gift.
Here are some gifting exemptions to consider when giving investment gifts this Christmas:
1. Gifts below £250
You can give as many gifts of up to £250 as you like in a given tax year. They will all be tax-free unless a recipient has already received your entire £3,000 annual exemption (more on which later).
The £250 gift rule could be perfect for making a one-off contribution to a JISA or pension.
2. Gifts within the annual exemption
HMRC will allow you to gift up to £3,000 a year tax-free. This is known as your “annual exemption”.
What’s more, the exemption applies per individual and unused allowance can be carried forward for up to one year. This means that you and your partner could gift up to £12,000 into a child’s investment if neither you nor your partner, has made use of the annual exemption in the last two years.
3. Gifts from “surplus” income
If you want to make regular contributions to a pension or JISA on your child’s behalf, you can take advantage of the regular gifts from income exemption.
You’ll need to be able to prove to HMRC that the gift is regular and that making it doesn’t affect your standard of living.
Get in touch
At Fingerprint Financial Planning, we can help you to build a nest egg for your child or grandchild, giving them a Christmas investment gift that keeps on giving.
Get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
