You could consider a different kind of gift for your children or grandchildren this Christmas – perhaps one with a financial focus.
According to a prediction made by Hamleys, among some of the top bestselling toys this Christmas will be an XShot Skins Last Stand Dart Blaster, a Play-Doh Ice Cream Cart and Peppa Pig Roller Disco.
Ten years ago the top requested presents were a Fisher-Price (MAT) Undersea Mermaid, the LeapFrog (LF) LeapPad 2, Furbies and the Nintendo Wii U. Twenty years ago in 2002 the most popular Christmas gifts were the Bratz Dolls, an Xbox, Yu-Gi-Oh and Teenage Mutant Ninja Turtles figures.
For those who perhaps would prefer not to wholly invest in plastic for Christmas in 2022, there are other options. As an alternative with greater durability and hopefully a better long-term return on investment, you could consider a financial gift for a child or grandchild. Your options include:
Junior ISAs (JISAs)
These are very similar to their adult ISA counterparts, so are free of UK income tax and capital gains tax (CGT). The maximum total investment (from all sources) is £9,000 per tax year. JISAs are available to any child under the age of 18 who does not already have a Child Trust Fund.
Self-invested personal pension
Whereas the funds in a JISA will be available from age 18, pension fund monies will be locked up for much longer – currently to age 55 but for today’s children that could rise to at least age 60. The maximum investment is also smaller at £3,600 a year, but this comes with basic rate tax relief, meaning your maximum outlay is £2,880.
Absolute trusts
Absolute (or outright) trusts can be used to make investments in unit trusts and open-ended investment funds. The control of the investments lies with the trustees until the child reaches 18 (16 in Scotland) at which point the child, as beneficiary, is entitled to take over. If the gift originates from a parent and the income generated exceeds £100, it is taxable on the parent (to be clear the limit is £100 per parent, per child, per tax year). This rule does not apply to gifts from grandparents (or others) and any CGT is always treated as the child’s.
Premium bonds
Apart from a somewhat uncompetitive JISA (paying 2.70% variable at the time of writing), premium bonds are the only offering that National Savings and Investments promotes for those under the age of 16. Prizes are tax free (even if capital came from a parent), but the prize rate of 2.2% means that, based on average luck, the children’s accounts offered by some banks and building societies offer a better return.
These options may feel less exciting to unwrap under the Christmas tree, but they aim to grow with their recipients and could end up being more valuable over the longer term.
