5 min read

Christmas countdown: the financial gifts you can give to your loved ones

John Fitzsimons
4 December 2018

There’s no question that sorting out gifts for your family and friends is an expensive process. According to a new study from price comparison site GoCompare, each household across the nation is set to spend an average of £365 on presents alone this Christmas.

Sure, a new tablet or Lego set will always go down well. But if you want to really give a gift that could help your loved ones out for longer than the festive period, then there are a host of financial gifts worth considering.

Premium Bonds

Premium Bonds are the nation’s favourite savings account - more than 21 million people have one. They aren’t like normal savings deals either, as rather than pay interest, each £1 bond you hold is entered into a monthly prize draw with a top prize of £1m.

You can purchase Premium Bonds on behalf of your children or grandchildren, though National Savings & Investments, which provides the bonds, is planning to open this out further. You have to buy a minimum of £100 of bonds initially, and the money is completely protected by the government.

Stick it in an ISA

Just as adults can take advantage of Individual Savings Accounts (ISAs), which allow you to avoid paying any tax on the interest you earn, young people can do the same through Junior ISAs.

While the ISA itself needs to be opened by the child’s parent, anyone can contribute to it.

Currently up to £4,260 can be paid into a Junior ISA each tax year. The child takes control of the account once they turn 16, but they can’t access the money until they hit 18.

Junior ISAs come in two main types. There’s a cash Junior ISA, which works much like a normal savings account, and an investment Junior ISA, where the money is put into stocks and shares.

Open a pension for them

Retirement may seem an awful long time away for your little loved ones, but starting early is one of the simplest and most effective ways to end up with a decent pension pot. So putting a few quid aside in a pension for your children could be a smart move.

Parents or legal guardians can open a pension on behalf of their child and then contribute up to £2,880 a year to it. This then gets topped up by the government. The child then gets control of the pension when they are 18, though they won’t be able to access it until they reach their mid-fifties, thanks to the pension freedom rules.

Cold, hard cash

It’s worth remembering that handing cash gifts to your nearest and dearest can actually be a tax efficient move on your part if you’re looking to keep your inheritance tax bill to a minimum.

Inheritance tax is payable if you pass away and leave an estate - basically the value of your property, your savings, and all of your possessions added together - worth more than £325,000. You pay 40% tax on everything above that point.

However, you are able to lower the value of your estate by taking advantage of your £3,000 annual ‘gift allowance’ - so you can give away up that sum each year, without incurring inheritance tax. On top of that you can give as many gifts of up to £250 as you like, so long as they aren’t going to the same people that benefited from your initial gift allowance.

Bear in mind that you need to live for seven years after making the gift, otherwise the money you have handed over will still be included when calculating the value of your estate and therefore what tax you need to pay.

Micro-investments

If you want to go for something a little different, then you could buy a loved one a voucher to use on a site like Lend With Care.

Through Lend With Care you can lend money to entrepreneurs starting up businesses across the developing world. These borrowers may be looking to buy land in Cambodia on which to grow rice or invest in more livestock for their farm, for example.

They will then repay the loan, with interest on top. Your loved one can choose where they want to invest, and then get updates as the business progresses.

by John Fitzsimons

John Fitzsimons is a freelance financial journalist who has been writing about money for more than a decade. appearing in the likes of the Sunday Times, the Mirror, the Sun and Forbes.

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