Receiving gifts is a joyful experience but wouldn’t it be better to have some choice so you can get something you really need and helps you?
Becky has a problem!
On birthdays and Christmas, her son has been getting lots of presents from loving family and friends. This, of course, is great but can have the downside of an accumulation of a random, and duplicate, collection of plastic toys, and the problem of those annoying doubles of Lego sets.
Her experience with this is not unique!
She says “People struggle to know what to buy our son. It would be great if we could point to something that our son would enjoy and guide them towards it. They could then contribute towards it or help buy it. But it does feel odd and impersonal just asking for money.”
1. Seeking cash contributions to useful presents is good for the environment
It is common for guests at a birthday party to check what the child, whose birthday it is, would enjoy receiving. This helps parents because it allows them to choose things that they believe will help their child’s development and give them enjoyment.
And, it reduces plastic waste too!
Receiving invitations to contribute to wedding gift lists is common, so why not the same for birthdays?
2. Receiving cash in a card is a pain!
Offspring users have pointed out that they find the concept of sharing and receiving contributions directly to a goal, using the social saving tool, much more convenient than cash in a card or gift cards that get diverted to other uses. Worse still is having to deal with cheques received. Some banks will allow users to take an image to process the cheque via their apps, but most require you to deposit it at a branch.
Jim confessed “my son got £300 in cash gifts for his 8th birthday from the extended family and friends. The money made it only as far as the dresser because who goes to bank branches to deposit cash? And then the weekend arrived! We spent the cash on a family take away because it was handy.” Of course, he quickly added that he would reimburse his son but wished the money could have been sent directly to his son’s bank account, like a “virtual gift”.
If you are asked to contribute to a gift and need guidance on how much to contribute, the folks at money.co.uk have created a very handy tool to help users identify the typical value of gifts for various occasions – birthdays, religious festivals, weddings, etc. You’ll find it here.
3. There are tax benefits to money gifts
The taxman allows you to make gifts every year, up to certain limits. These gifts can be reduced from the value of estates on which Inheritance Tax (IHT) is due.
We often hear comments like this one “IHT is not relevant to me because I am too young to worry about it.”
Fair enough! This may not apply to you as an individual, but might it be relevant to those who are likely to gift to you? It is relevant to those grandparents and parents who want to give children in their families a helping hand with education or property purchase or to create a nest egg for use in the future. And this kind of family saving and gifting is very common.
And the reality is that when young people need money, they often turn to the ‘bank of mum and dad’ and ‘bank of nan and grandad’. As an example, nearly a quarter of all first-time home purchases are helped by the Bank of Mum and Dad, according to Legal & General. By carefully using the gifting allowances allowed by the taxman, those who gift benefit, as do the children and grandchildren who receive gifts.
The annual gifting allowance is £3,000. This means people who want to gift can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of their estate for Inheritance Tax (IHT) calculations purposes.
Rules relating to large gifts can be complicated and it is best to get advice, where appropriate. But some rules around gifting are easy and can be found at Money Advice Service.
4. Gifting money for birthdays can create a nest egg for the future
£9,000 is the new annual limit on contributions to Junior ISAs. Parents of children who are below the age of 18 need to set up the Junior ISA but anybody can contribute to a Junior ISA if they are invited. This type of group saving is a great way for grandparents, godparents, friends, and family to help build a nest egg for the children in the family. Contributions at birthdays or other special occasions like religious festivals like Christmas can help build a fund for use in education, that first deposit on a property, etc.
Information on setting up Junior ISA’s can be found at Money Advice Service’s helpful guide here. Alternatively, you can check out Lloyds, Hargreaves Lansdown, Vanguard as a starting point for information on Junior ISA’s.
5. Gifting can help build a deposit using a Lifetime ISA, for older children
If your child above the age of 18 they can open a lifetime ISA. If you, or a grandparent, were to gift the child money for a birthday or another occasion, they would be able to fund a lifetime ISA with this family gift.
Any contribution to a Lifetime ISA also receives an additional contribution from the government. Of course, there are limits. The maximum annual contribution to a Lifetime ISA is £4,000 and the government tops it up by 25%. This increases the amount saved to £5,000.
Tony Fields, Chartered Financial Planner at Jarrovian Wealth adds: “We all know how hard it is to get on the housing ladder for first time buyers, and one of the biggest challenges is the level of deposit which is required. Using a Lifetime ISA alongside other savings vehicles is a very effective way to build up the cash sum which is needed”.
And, the gift could reduce the impact of IHT on the parent or grandparent’s estate too.
The rules can be complicated so read up on them here or get financial advice.
But why not use all the support available to help your children achieve the goals you have for them or they have for themselves!
At Offspring, we encourage families to teach their children about what money. You will find these sites helpful
If you have very young children: Save your Acorns
If your children are a bit older: How parents talk to their children about money
If you want to know what financial experts suggest teaching children about money, savings, and taxes (and maybe it resonates) read this piece by Alys Key.