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Festive Gifts that Teach Children the Value of Money


With the festive season approaching, have you thought about gifting your children or grandchildren something different this year? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.


Lifetime gifting is not only a good way to set up children for adulthood but is also a way of mitigating any Inheritance Tax concerns. However, not all saving products for children are made equally. With interest rates at historic lows, if you are looking to put money away for a child to enjoy when they grow up investing is by far the best way to maximise your gift.


Junior ISAs


A Junior ISA is a long-term savings account set up by a parent or guardian and lets you save and invest on behalf of a child under 18 without paying tax on income or gains. With a Junior Stocks and Shares ISA, you can put up to £9,000 of your child’s savings for the 2021/22 tax year into investments likes funds, shares and bonds. Any profits you earn by trading investment funds, shares or bonds are free from tax.


Investments are riskier than cash but could give your child a bigger profit, and the value of a Junior Stocks & Shares ISA can go down as well as up. Money in the account belongs to the child, but they can’t withdraw it until they turn 18, apart from in exceptional circumstances. They can start managing their account on their own from age 16. Friends and family can also save on behalf of the child, as long as the total stays under the annual limit.


When the child turns 18, their account is automatically rolled over into an adult ISA. They can also choose to take the money out and spend it how they like. It is therefore important to ensure that children are given financial education from a young age so that when they can get their hands on the funds, they use them wisely.


Stakeholder Pensions


Another option is to set up a stakeholder pension in your child’s name. With the minimum pension age rising to 57 in 2028, this means the money will stay invested until they are at least 57 years old, so there will be many years over which the money has the opportunity to grow.


Each year, you can pay up to £2,880 into a plan for each child. Basic rate tax relief of 20% will be added to this, taking the total contribution to £3,600, even if the child is a non-taxpayer.


By saving this way, it may also help mitigate an Inheritance Tax Liability, as payments from grandparents may be covered either by the £3,000 gifting allowance exemption or by the exemption for payments made out of income.


To find out more about planning for your children or grandchildren’s future or any other financial planning needs you may have, please contact me at nkidby@chilternconsultancyltd.com or call 07774 264356.

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