How to give meaningful gifts this festive season
Happy experiences! Nobody remembers stuff; we remember the amazing times shared with friends and family. If there’s a golden rule of gifts, it’s this: give an experience rather than a thing. Research has shown that people who receive experiential gifts are more connected to the gift-giver than those who received material items. Experiential gifts are meaningful - there’s no waste and they create happy memories.
The best way to ensure that a really special experience will happen in the future is to pitch it as a gift and then start saving. For instance, you can invest for your child’s overseas university education in 10 years, or for his or her overseas gap year before university in nine years, or for a special holiday for you and your spouse in two years.
The first essential step to successful investment gifting is to discuss the concept before the big day arrives. Your wife or child might be a bit upset if he or she is given an investment application form instead of something more tangible. There are ways to do this. You can roll the form up and tie a red ribbon around it. Most importantly, give the investment a name. Naming the gift is important since it sells the outcome. You could call it “University abroad”, for example, or “Second honeymoon”.
Gifts from the taxman
The taxman doesn’t give us many breaks, but when he does, it’s essential to use them. If you’re investing for long-term gifts for your children, you can start tax-free savings accounts in each of their names. There’s no income or dividends tax within the fund, which essentially speeds up the growth of the investment. There’s also no tax on the withdrawals.
Another advantage of a tax-free savings investment is that the allocation doesn’t have to be regulation 28 compliant (as other tax-free funds such as retirement annuities need to be), which means that the asset allocation can be 100% offshore to align with the investment goal, such as an overseas education.
The caveat is that you can only invest up to R33000 a year into a tax-free savings account, with a lifetime limit of R500000. If you exceed the R33000 limit, you’ll be taxed at 40% on the contributions over and above this amount.
More about tax and gifting
Remember that donations tax applies in South Africa. This is mainly to prevent an investor from giving away all his or her investments during his or her lifetime, to avoid estate duty when he or she passes away. The rate is 20% on any donations over and above the R100000 limit, a year.
You don’t have to worry about donations tax when giving to your spouse as donations between spouses are tax-free, regardless of the amount. What’s more, you don’t have to be formally married to qualify, only committed to a long-term relationship. If you decide to give a gift by transferring an investment into your spouse’s name, the transfer is not regarded as a sale and will not attract capital gains tax.
But, if you’re a grandparent and you’re paying for your grandchildren’s school or university fees, such payments are donations. Luckily, both granny and grandpa are each entitled to the R100000 donations tax exemption.
The gift of knowledge
Another positive spin-off from an investment gift is the educational potential. You can monitor the growth of the investment together and make changes to the underlying funds along the way if required. You can discuss the reasoning behind the selection of the funds and the level of risk associated with the investment. You can also draw up a budget to make sure that the contributions continue. In fact, the ongoing discussion around each investment can become far more significant than the investment itself.
It’s time to make meaningful gifting a family tradition. If you’re unsure about the best investments to choose, or how to make it fun, consult with a Certified Financial Planning professional and start saving for things that really matter.
Hardi Swart is director of Autus Private Clients and the 2019/20 Financial Planner of the Year.