Article

Five financial gift ideas for the festive season

These financial gift ideas can help loved ones meet life’s goals, achieve something new or simply teach lessons about saving and investing.

| 9 min read

As the festive season descends upon us it’s not always easy to decide on gifts to buy our loved ones. It’s true, you can’t go wrong with socks, but there’re also some more lasting gift ideas that are just as practical.

In this article, we provide a roundup of some financial gift ideas that can help the recipients meet life’s goals, achieve something that wouldn’t otherwise be possible, or simply teach life lessons about saving and investing. If you’re looking for clever ways to give money as a gift, or just some practical present ideas for the festive season, you’re in the right place.

Five financial gift ideas

1. Cash

    Gifting money can seem a bit of a default option when nothing else springs to mind, though recipients usually greatly appreciate the gesture. It’s perhaps more effective when a finance gift is earmarked for a specific purpose, such as paying towards a car, holiday or to pay down debt, and there’s much to be said for paying towards something especially important to them.

    It’s important to bear in mind that gifting cash to children comes with tax consequences if it involves larger sums. Parents gifting money to a child should be aware that the child can only earn £100 of interest before tax becomes payable by the adult. In contrast, there is no limit to the amount of interest children can earn from cash given by other family members or friends, but they do have their own tax bands and allowances just like adults.

    By saving for your child into a Junior Cash ISA (see below) you sidestep the potential problem, as interest is tax-free. But if you want your child to have easy access to the money you may decide to pay into a savings account provided by a bank or building society instead. If the child is under 16, a parent can open an account on their behalf, providing their birth certificate as identification. For older recipients opening an account on a cash savings platform can help gain a competitive interest rate more consistently.

    2. Junior ISAs

      For children in your family, the festive season is not complete without presents in a stocking or under the tree, but if you want to put something away for their financial future then Junior ISAs (JISAs) are worth considering.

      A Junior ISA (JISA) is a long-term savings or investment account that parents and legal guardians can open for under 18s, and they can be a great way to give a child great head start in life. There are a multitude of daunting costs faced by the younger generation including education, a first car, getting married and the need to accumulate a deposit for a house. Who knows, you could even make your child a future ISA millionaire!

      JISAs are also a popular option because family and friends can contribute too, and there’s the same tax benefits as an adult ISA – no capital gains tax or to pay on income and interest.

      There are two types: a cash JISA, where you earn interest, or an investment JISA, where the money is put to work in shares or other investments. These may provide the potential for higher returns over a longer time period than if you put money into a savings account. Remember, though, investments can fall as well as rise, which means there’s a risk of getting back less than you put in. Investing through a fund or several funds to spread your money across a wide range of shares or other assets is one way to harness the long-term potential but spread the risk.

      The maximum that can be contributed to a JISA for the 2023/24 tax year is £9,000 per child. Withdrawals are possible from age 18 when the account matures into a grown-up ISA, meaning you do need to be comfortable with the idea that the money ends up wholly in their hands at that time.

      Find out more about Junior ISAs in our introductory video below.

      3. SIPP contributions

        A pension contribution could be the ultimate longer-lasting financial gift. The recipient won’t have access to it until late in their 50s as rules currently stand, but it’s a tax-efficient way to help secure a financial future for someone later in life. Even non-taxpayers, including children, are allowed to make pension contributions of up to £2,880 each tax year (£3,600 after tax relief added).

        The typically long timescale means some of the money can be invested in riskier parts of the stock market in the expectation of higher returns. Smaller companies, emerging markets or the technology sector are all areas that could be considered for a multi-decade timeframe, or even individual company shares that have a special significance. For the latter, a flexible pension with lots of investment options such as a Self-Invested Personal Pension (or SIPP) is required.

        Find out more about SIPPs

        4. Financial and investing books

        Financial gifts can be about knowledge rather than money. There tends to be a lack of financial education in schools, so understanding the value of money, savings, and investing can be a great life lesson for kids and many grown-ups too. This might not be the most riveting topic for them, so an engaging author is very important.

        Morgan Housel’s highly entertaining The Psychology of Money teaches how to make better financial decisions and understand your relationship with money. Alternatively, for budding stock pickers, Peter Lynch’s One up on Wall Street is now several decades old but instils timeless wisdom of how to think about companies and markets.

        5. Financial advice or coaching

        A problem shared is a problem halved when it comes to many financial dilemmas, but why not help solve the problem altogether? It’s normal to turn to trusted family and friends for financial queries, but a qualified professional can provide comprehensive and impartial advice or guidance. The peace of mind that comes from this expertise could make an ideal gift.

        For instance, Charles Stanley’s One Step Financial Plans provide streamlined advice around one of five commonly asked financial questions. For a one-off fee of £900 a qualified a regulated adviser will help someone understand their current situation and provide a clear action plan.

        The format of our OneStep Financial Coaching is even more flexible with an educational session based on a chosen topic, although it won’t provide specific recommendations. Each one-hour coaching session is charged at a one-off fee of £150 (including VAT). Importantly, all our coaching is provided by regulated and qualified financial planners who work for a regulated company.

        What about inheritance tax on gifts?

        If you want to gift money to help younger family members during your lifetime, as opposed to leaving it in your will, there can be inheritance tax to consider.

        Provided you live for at least seven years, you can give away as much as you like, to whomever you like, and after that, the money will be out of your estate for IHT purposes. Broadly, IHT is charged at 40% on the value of your estate over the first £325,000, though couples can combine their allowances by leaving assets to each other. There’s an extra allowance related to your primary residence, meaning that couples can leave up to £1m to younger direct relatives free of the tax with some careful planning.

        If you die within the seven years, the gift forms part of your estate, but for the gifts above the nil rate band, the tax payable will be progressively reduced if you die between year three and year seven. There’s also some annual gift allowances exempt from IHT, including £3,000 to one or more people, an unlimited number of small gifts of up to £250 per recipient, wedding gifts up to £5,000 (depending on your relationship to the person getting married) and unlimited regular gifts out of ‘surplus’ income, which is defined as over and above normal living expenses. The rules here can be complex, so if it’s likely to be an issue for you financial advice can help.

        If you decide to use some of these allowances, keep a record of how much you gave, when you did it, and to whom, which will simplify things for your executors.

        Financial gifts keep on giving

        Just as the wise men provided gold, a financial gift is worth considering if you want to offer longer-lasting benefits to the recipient. Whether it’s money for a holiday that can create forever memories or an investment that can hopefully compound in value over the years, a well-thought-out financial gift can live on well beyond the festive season and even future Christmases to come.

          Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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