Planning Financially for your family part 4

For adult children, pick an ISA or Lifetime ISA 

In these financially challenging times, some parents and grandparents also want to help out older children too, giving them a lifeline to pay for big financial goals such as a house deposit, a wedding, or clearing student debt.

Adult ISAs can be useful for this, with the gift-giver able to contribute up to £20,000 per tax year, although don’t forget the risks around IHT. Adult ISAs, like JISAs, can be invested either in stocks & shares or cash, with any gains or income free from capital gains tax and income tax – but there are no restrictions on when they can accessed.

For a house deposit, contributing towards a Lifetime ISA is more beneficial, as savers aged between 18 and 39 can contribute up to £4,000 a year into an investment or cash LISA, and the government will top it up by 25%. That’s up to £1,000 of ‘free cash’ a year. 

There is one condition, however – the pot must go towards either the purchase of your first property (capped at £450,000 in value) or be held until you are at least 60. Withdrawals before 60, other than for a first property purchase, will be subject to a 25% penalty as the state top-ups are clawed back. 

LISAs are great for long-term saving for those between the ages of 18 and 39, however they can continue to pay in and still receive the state top-up until they are 50.

Go traditional and give premium bonds to your loved ones

Premium bonds have been around for almost 70 years with many considering them the safest way to save money because they are 100% backed by HM Treasury. The interest received on the holding is decided by a monthly prize draw with National Savings & Investments increasing the number of Premium Bond prizes it pays out every month from 1 October, effectively boosting increases the prize fund rate from 1.4% to 2.2%.

While this sounds competitive, the rate is less than the top easy-access savings rates available right now plus this is not a guaranteed return as you need to win to gain, with many not receiving any prizes at all over a 12-month period unlike bank interest which is guaranteed.

The good news, however, is parents and relatives can buy up to £50,000 in premium bonds for a child aged under 16, with all the prizes, including the top award of £1 million each month, totally tax-free.

However, unless someone wins big, they will lose value in terms of purchasing power once you factor in inflation. People giving a financial gift like this might also want to consider the implications if a child does win big. If there is more than one child in the family, it might not seem fair if one child suddenly has a huge pot of cash and the others don’t.