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Giving money at Christmas to grandchildren

Harriet Meyer / 05 December 2018

A gift of money to your grandchildren at Christmas can be a wise choice, especially if you take a long-term approach

Grandmother and granddaughter sitting happily together on a sofa
A gift of money to grandchildren at Christmas can make a difference to them in years to come

If you're thinking about giving your grandchildren some cash stuffed inside their Christmas (or birthday) cards this year, stop. While those notes may be gratefully received, there are plenty of other ways you can offer your grandchildren a financial leg-up. 

After all, a savings pot that can stack up over time may prove particularly useful. This could be put towards paying off student debts, say, getting a foothold on the property ladder, or funding education.

We take a look at some ways you can save and invest for your grandchildren, and the rules involved.

Savings accounts

You can open a standard savings account in your grandchild’s name – and remember, you’re not limited to specific children’s accounts. That’s provided you have access to the necessary documents, such as their birth certificate.

As a starting point, compare those on offer for the best rate, and check what’s needed to open an account. Children rarely pay tax, as they can earn up to the personal allowance tax-free, which currently stands at £11,850 for the 2018/2019 tax year.

Premium bonds

You can buy Premium Bonds in your grandchild’s name, if you’d prefer the option for them to win tax-free prizes, worth from £25 to £1 million.

The minimum investment is £100, and the guardian or parent on the application form looks after the bonds until the child turns 16. Of course there are no guarantees they’ll win a penny, but they’ll always have the initial investment amount.

Stocks and shares

Remember that investing is a long-term game. Yet if you’re starting to invest for your grandchildren at birth, this gives your investment plenty of time to ride out the highs and lows of the stock market before they’ll dip into the pot.

With any investment, there’s a chance you could lose money. Past performance isn’t a guide to the future but, historically, shares have outperformed cash over the long term.

Grandparents may transfer assets to grandchildren using a ‘bare trust’, where assets will be held in the grandparent’s name until the child reaches age 18. The money is taxed as if it belonged to the child, using their personal tax allowances.

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One option is a Junior ISA, into which you can slot up to £4,260 per year, as a tax-efficient option. Your investment grows without being subject to income tax, dividend tax and capital gains tax (CGT).

However, typically it’s parents who open these accounts for their children, and grandparents may find they’re unable to do so, so you’ll need to speak to your children if you want to use this option. Your grandchild can access the money once they turn 18.

Child SIPP

If you’re keen to boost your grandchildren’s retirement pot, a Child self-invested personal pension (SIPP) is an option. You can pay in up to £2,880 per year, which is increased to £3,600 with tax relief from the government.

A SIPP can be accessed by your grandchild when they reach age 57 (rising from 55 in 2028).

Piggy banks

There are numerous inventive options when it comes to the traditional, physical, piggy bank, which may help kids get into the savings habit, and install the value of money at a young age.

Little girl and her mum looking at the MoneyBox Tree by Coin It In
The MoneyBox Tree by Coin It In is a fun alternative to the piggy bank

For example, there’s the Money Box Tree, from Coin It In, which enables children to slot pounds into a tree-shaped, transparent box. They see their money building up, over time, before their eyes, helping them understand the concept of saving. 

However you decide to give to your grandchildren, with some thought and a little planning, your money could be a gift that lasts far beyond Christmas. 

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.