2 December 2019
With only 23 shopping days until Christmas, now’s the time to start thinking about presents. But rather than joining the crowds of Christmas shoppers, why not use your gift allowance and consider some alternative presents for your children or grandchildren that won’t be cast aside by the time the Christmas tree comes down.
Carla Morris, Financial Planner, Brewin Dolphin, says: “Parents or grandparents wanting to gift without incurring inheritance tax can make use of the annual gifting allowance which can be spent in a number of ways. Not only will you save shopping time, and wrapping paper, you could be contributing towards something really valuable for your children or grandchildren for the future – a present that could last a lifetime.”
Carla’s top five alternative Christmas presents are:
Junior ISA – The annual £3,000 gifting allowance can be used to fund a junior ISA, or JISA, the limit is currently £4,368 for the tax year 2019/20. JISAs are a great and tax-efficient way to save for children or grandchildren – especially if you start contributing to them early on in a child’s life. The long-term nature of JISAs also makes them ideal for saving in stocks and shares. Contributing the full allowance of £4,368 – or £364 per month – for 18 years into a stocks and shares JISA, assuming a return rate of 4% net of fees (real returns have been higher) and inflation follows the bank of England target rate of 2%, could create a fund of £128,339. Even a lower contribution of £100 per month could create a pot of £33,205.
Pension – Children are allowed pensions, although the recipient would not have access to their pension until they reach the age of 55, making it a much longer-term option – is a way of offering parents and grandparents the opportunity to provide a financial contribution safe in the knowledge that their child can only access the money when they are older. The family can contribute up to £2,880 net per annum, which the government will top up to £3,600 through tax relief. Contributing the full allowance over the same period as a JISA – 18 years – before ceasing and allowing compounding to do the remainder of the work could create a pot of £99,616. This figure is based on an average annual return of 4% net of fees.
Savings Accounts – There are savings accounts for children, currently paying around 3% AER* for easy access. If you already have a children’s savings account and are thinking of topping up for Christmas make sure you check the interest rate first – there are a lot of accounts out for there for both children and adults so it’s good to shop around for the best interest rates. Some savings account will also come with a cash card for older children which is a great way to help them learn how to budget and look after their money.
Investment Account – This is another way to save and investment accounts can be opened by anyone for a child, using a lump sum or regular premiums. For those who have exceeded their annual JISA allowance, investment accounts can hold a portfolio of funds or shares, either picked by yourself or put together by an adviser. Held under a bare trust, the investments are held by a trustee (e.g. a grandparent) for the benefit of the child who will have access to the money from age 18. If the money is put into the trust by anyone other than the parents the contents are taxed as if they belong to the child. This includes gifts from grandparents and usually means that there is little or no tax to pay on income or gains. It’s worth noting that If income from a parental gift exceeds £100 per year, the parent will have to pay tax on all the trust’s income until the child reaches 18.
Premium Bonds – NS&I premium bonds are a savings account you can put money into (and take out when you want), and the interest paid is decided by a monthly prize draw. You buy £1 bonds and each has an equal chance of winning, so the more you buy, the more your chances improve. The minimum purchase amount is £25 for one off purchases and monthly standing orders, the maximum amount you can hold is £50,000. Anyone can now buy premium bonds for under-16s and nominate the child’s parent or guardian to hold them. However, the average winnings equate to an interest rate of 1.4% rate**, so you will have the chance of winning a million but more likely, you’ll get the equivalent of a poor interest rate.
*HSBC MySavings – 3% AER on up to £3,000 and must be aged between 7 and 17 years old https://www.hsbc.co.uk/savings/products/mysavings/
**https://www.nsandi.com/premium-bonds
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel. +44 (0) 20 3201 3343
Anita Turland: anita.turland@brewin.co.uk / Tel: (0) 20 3201 4263
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
Camarco: brewin@camarco.co.uk / Tel: +44 (0)20 3757 4980
NOTES TO EDITORS
Disclaimers:
- The value of investments can fall and you may get back less than you invested
- The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.
- Past performance is not a guide to future performance
- This information is for illustrative purposes only and is not intended as investment advice.
- No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
- Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change.Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
- Any tax allowances mentioned are based on personal circumstances and current legislation which are subject to change.
- Brewin Dolphin is authorised and regulated by the FCA
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £45.0* billion in total funds, it offers award-winning personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
Our intermediary business manages over £13.8* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service.
In line with the premium we place on personal relationships, we’ve built a network of 32 offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £40.1* billion on a discretionary basis.
*as at 30th September 2019