If you’re looking to give a different kind of Christmas present this year, beyond toys and gadgets, a financial gift could be just the thing.
According to toy shop Hamley’s, the top presents this year are predicted to be Spiderman Lego, Star Wars lightsabers, TY bouncers and even an AI-powered football trainer. Fun? Absolutely. But perhaps not the most sustainable, meaningful or long-lasting.
Having two teenage nephews myself, I don’t want to gift more ‘things’ that are likely to be used once or twice and then forgotten about.
Financial gifts can be a wonderful option if you’re looking for something special to give your children, grandchildren or other family members at Christmas. They can teach good money habits and help to save up for truly special things later in life, like buying their first home.
As a bonus, many of these gifts come with tax benefits for you and your estate, which means less of an impact on the Inheritance Tax bill when you leave wealth in your Will.
Saving for the future
If you’d like to gift some money that can grow tax-free, a Junior ISA is a fantastic option. Think of it as a nest egg for their future that can maybe help with school trips, extra-curricular classes or university fees.
You can put in up to £9,000 per year, and everything inside the JISA grows free from UK Income Tax and Capital Gains. Once the child turns 18, they’ll have full access to the money to use as they wish.
Trusts with love
Trusts might sound a bit formal, but they’re actually a powerful way to make a long-term gift. With an Absolute or Bare Trust, you name the child as the beneficiary from the start. The Trustees (usually parents or grandparents) manage the funds until the child turns 18 (or 16 in Scotland).
It’s a great way to keep control over how the money’s invested while ensuring it’s ultimately there for your loved one. If you’re a grandparent, there’s an extra perk: any income or Capital Gains are treated as belonging to the children for tax purposes, not yours.
Simple financial gifts
Sometimes, the simplest gestures are the most meaningful. Giving money directly to family members this Christmas rather than waiting to pass it on through your Will can be a significant experience for both parties.
You can give away as much as you like and as long as you live for 7 years after making the gift, it’s completely free of Inheritance Tax (IHT).
Smaller gifts can also be tax-free straight away:
- You can give up to £250 per person each tax year.
- Or use your £3,000 annual exemption to gift larger amounts.
- Wedding gifts are another exemption – parents can give up to £5,000, and grandparents or great grandparents up to £2,500. You can also gift £1000 to any other person for their wedding, without it counting towards IHT.
Giving to charity
At this time of year, we tend to think even more about those who are not as fortunate as ourselves.
When gifting to charity as a basic rate taxpayer, the charity can claim the basic rate tax through the gift aid scheme.
However, if you are a higher or additional rate taxpayer, you can personally claim the difference between the basic rate and your higher rate through self-assessment.
A gift that truly lasts
Whilst toys and treats may bring short-term joy and happiness on Christmas day, a financial gift can bring comfort, opportunity and security for years to come.
If you’d like to explore the most tax-efficient ways to give, we’d be delighted to help find the right approach for you. Feel free to contact our team.
Important Note
The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes only. This communication does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Please note
Tax treatment depends upon individual circumstances and is based on current UK tax legislation, that is subject to change at any time.
Past performance is no guarantee of future performance.
The value of an investment and the income from it can fall as well as rise and investors may get back less than they invested. Your capital is therefore always at risk. It should be noted that stock market investing is intended for the longer term.
