Option For Gifting Grandchildren Money This Christmas | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 08/12/2021
elderly couple holding children

Grandparents struggling to decide what to buy for their grandchildren this Christmas may be considering gifting them money instead.

Although money does not bring the joy of seeing a grandchild unwrap a physical present on Christmas Day, it can be a great way to save towards the child’s future or simply provide them with the independence of having their own money.

For those considering giving a cash gift to their grandchildren this Christmas, here we’ve looked at the options available when gifting money of different amounts.

Small cash gifts

Grandparents gifting a small amount of money of £500 or less may find the easiest option is to give the gift as cash to the child. Parents or grandparents may, however, want to consider opening a children’s savings account for the child.

Many children’s savings accounts will allow the child to withdraw the money whenever they want, but it will also allow them to earn interest on money that is kept in the account.

All the children’s savings accounts currently available can be found in our children’s savings account chart.

Cash gifts of a few thousands of pounds

Those looking to gift a grandchild a gift of up to £9,000 have a number of options. As with small cash gifts, they could consider choosing a children’s savings account, however these accounts may be subject to savings tax. As such, a cash Junior ISA may be a better option for those concerned about paying tax on savings.

Up to £9,000 can be deposited tax-free into a JISA for the 2021/22 tax year. Unlike a children’s savings account money cannot be withdrawn from a JISA until the account matures when the child turns 18.

Another tax-free option available is to deposit the money into premium bonds. Anyone can buy premium bonds for a child under 16, but the child’s parents or guardians will need to be told as they will be contacted to provide evidence of identity and address.

Premium bonds can be opened from just £25, and up to £50,000 can be deposited in total. All the money held within premium bonds is tax-free. Although no interest is offered, each month all premium bond numbers are entered into a prize draw which can see them winning cash prizes ranging from £1 million to £25.

Large cash gifts

Grandparents looking to gift £10,000 or more to a grandchild may want to consider choosing to invest the money or splitting the gift between a savings account or cash JISA and investing.

As already mentioned, up to £9,000 can be deposited into a cash JISA tax-free for the 2021/22 tax year. This JISA limit is the same for those considering opening a stocks and shares JISA, however if £9,000 is deposited into a cash JISA any money deposited into a stocks and shares JISA will be above the tax-free allowance and vice versa.

Those thinking about opening a stocks and shares JISA should be aware that investing in one has the risk of the child not earning any returns on the deposit and can, in some cases, result in all the money deposited being lost. For more information about investing in a stocks and shares JISA and other investment options available, read our guide on investing for children.

Do you need to pay tax when gifting money?

Amounts of up to £3,000 can be gifted each tax year without incurring inheritance tax (IHT). This means that a grandparent with three grandchildren can gift each one £1,000 and remain within the gifting tax limit, as long as the grandparent has not gifted money at any other time during the year.

An exemption to this is if the gifting limit was not reached in the previous tax year, in which case the unused amount can be passed on to this year. For example, if a grandparent did not gift any money last year and then gifting £3,000 to two grandchildren this year, they would still be within the limit.

In addition to this, as long as the giver has not reached their £3,000 annual exemption, they can gift up to £250 to as many people as they like.

Gifts that are above the £3,000 limit can be subject to IHT. To read more about the tax implications of gifting money read our guide on how much can be given as a cash gift and how tax is affected.

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