Still wondering what to give the grandchildren this Christmas? As the festive season approaches, give them something different this year - a good financial start in life. By making investments into their future, you can make all the difference as they grow up during the uncertainty of the 2020s.
Helping younger family members financially
Many parents and grandparents want to help younger members of the family financially, such as helping to fund:
- school education
- university fees
- a wedding
- a deposit for a first home
- a new business venture
Lockdowns 1 and 2 changed people’s perceptions and gave them time to reflect on what really mattered to them. This, and the current economic climate has prompted many families to consider what they value, and what is just more ‘stuff’. So, why not skip the ‘stuff’ for this year, and give your children or grandchildren than a gift that has the potential to grow into a really useful sum of money.
If you’d like to discuss gifting money or financial help to children, call us. We’re happy to help with an initial online consultation to talk through the options,, and which might suit you and your family the best
Investing for children
There are a number of different ways to get started with investing for children. Investing now for your children could also benefit you in terms of tax incentives to reduce the amount of tax paid, both now and in the future. Do bear in mind that tax rules can change over time, so it is important to obtain professional financial advice before making final decisions.
Who owns the investments
Investing either a one-off lump sum or money on a regular basis is an ideal way to give a child a head start in life. There are a number of options available relating to ownership of investments for a child.
Not many parents or grandparents know that children receive many of the same tax-efficient allowances as adults, so it’s a good idea to consider specialist child savings accounts in their own name.
Some people prefer to keep investments for children in their name. That way, if a future need arises when you require access to the funds, you can do so as it has not yet been transferred to the child.
If you retain personal ownership of the investment, it will be *your* tax rates that apply, not your child’s. If the investment remains in your estate when you die, more taxes could be payable, so be aware of this.
You can hold investments for your child in a bare trust or designated account. Bare trusts allow you to hold an investment on behalf of a child until they are aged 18 years (in England and Wales) or 16 (in Scotland), when they’ll gain full access to the assets.
Bare trusts are popular with grandparents who would like to invest for their grandchild, as the investments and/or cash are taxed on the beneficiary child. However, this is only the case if you are NOT the parent of the child. If you are the parent, and if the bare trust produces more than £100 of income, it will be treated as yours for tax purposes.
Be a generous grandparent!
Grandparents can contribute as much as they like, as there is no limit to how much can be invested each year into this type of account. This can be a great way of reducing a potential Inheritance Tax bill on an estate, if a grandparent would like to make gifts to a child.
A discretionary trust is flexible, so is a good way of providing for several potential beneficiaries including children, grandchildren or other family members. You might, for example, set up a trust to help pay for the education of your grandchildren. The trustees can decide how the income of the investment is distributed, depending on which children go to university, and what financial resources their families have.
It’s worth keeping in mind that the tax rules can become complex when using a discretionary trust. Also, all investment and distribution decisions are taken by the trustees, of which you can be one. So, choose your trustees carefully!
Junior ISAs (JISA)
If you want to ensure the money you give to your children remains tax-efficient, look at an ISA designed especially for children. A Junior Individual Savings Account (JISA) is available for any child born after 2 January 2011 or before 1 September 2002 who do not already hold a Child Trust Fund.
JISAs have several benefits:
- All proceeds are free from income tax and capital gains tax
- Proceeds are not subject to the parental tax rules
- There is an annual savings limit of £9,000 for the current tax year
- A child can have both a Junior Stocks & Shares ISA and a Junior Cash ISA
From the age of 16, children can take over control over how their JISA is managed, but cannot withdraw from it until they are aged 18.
Child Junior SIPPs
It is never too early to start saving for retirement – even during childhood. The sooner someone starts saving, the more they will gain from the effects of compounding. There are also significant benefits to setting up a pension for a child. For every £80 you put in, the Government will top it up with another £20, which is effectively free money.
A Junior Self-Invested Personal Pension Plan (SIPP) is a personal pension for a child. It works just like an adult one. Parents and grandparents can save up to £2,880 into a SIPP for a child each year. What’s great about this gift is that the Government will top it up with 20% tax relief. So you can receive up to £720 extra, boosting the value of your present to £3,600. This can help a child to build a substantial pension pot if payments are made every year.
When starting a pension for your child or grandchildren, bear in mind that they won’t be able to access their money until they are much older. So they won’t be able to access it for the big expenses in their early adult life - a wedding, a new family, a home of their own, a new business venture.
Give a gift that keeps on giving
Whatever way you wish to gift your child or grandchild financially, it really is a gift that keeps on giving. Gifting just a little on a regular basis will soon build up a savings pot that’s theirs for the future, and perhaps start a savings habit for them that will serve them well throughout their lives.
Not just for Christmas
If you’re looking to make a financial gift for a birthday, a special occasion, or just because you want to, call us at Panthera Wealth to discuss the most effective method for your circumstances. Your initial consultation online is quick and easy to book, and it won’t cost you a penny.