Instead of buying a child yet another toy this Christmas, why not encourage the saving habit and give them money, suggests David Prosser in The Independent.
Even the smallest gift can become valuable by the time a child reaches 18. Parents, family and friends can contribute a maximum of £1,200 a year tax-free to the child trust fund (CTF) of any child born since September 2002. And even outside a CTF, unless you are a parent (in which case any income in excess of £100 will be taxed as your own), a cash gift is unlikely to cause tax problems as children are entitled to a personal tax allowance of £4,895 and qualify for the standard annual capital gains tax exemption of £8,500 like anyone else. Just remember to ask the bank or building society for Inland Revenue form R85 so it can pay interest tax-free.
Those wishing to open an account for a child should ignore the gimmicky targeted products and go for the best rate, says Faith Archer in The Daily Telegraph. Top accounts include Chelsea Building Society’s Ready Steady Save account, which pays 4.85%, the Saffron Walden Ladybird account, which pays 5%, and the Halifax Save4it account, which pays 4.8%. If getting a child excited about saving is your priority, you can’t beat Halifax’s Children’s Regular Saver which is offering a fixed rate of 10% for the next 12 months to children who pay in at least £10 a month (the maximum is £100 a month). Premium bonds also make good presents, as they have an element of chance about them that children like. However, the minimum investment is £100 and, although your money is safe, you do need to be lucky for them to be a particularly good investment: the prize money paid out by National Savings & Investments on premium bonds equates to an interest rate of just 3%.
Alternatively, physical gold would make an exciting gift. The gold price broke through the $500 an ounce mark recently, and analysts reckon there may be further gains to come. Chard (see https://www.chards.co.uk/) sells gold bars, kruggerands, sovereigns and coins starting at just a few pounds, and buying gold in this way doesn’t attract VAT.
Exotic investments aside, the “ultimate long-term Christmas gift” has to be a pension, says Prosser. Parents and relatives can invest up to £3,600 a year on behalf of a child in a stakeholder pension, and since these contributions qualify for tax relief, investing that £3,600 costs a basic-rate taxpayer just £2,808. Investing child benefit of £17 a week would produce a fund of £16,000 by age 18, even without any investment growth. By age 65, it would produce a pension worth £360 a month in today’s money. Lastly, if, as a parent, you want to get round the £100 income rule, says Jessica Bown in the The Sunday Times, one option would be to find an investment that produces capital growth, not income, such as a commodities fund.