SJP Gifting to your family
Gifting is one of the simplest ways to make sure money flows between generations, supporting different households or family members according to who needs it most.
Gifting also comes with significant tax benefits. Here’s what you need to know.
How much you can gift
- You can gift up to £3,000 every tax year free of Inheritance Tax (IHT). This is your gifting allowance, and you can gift it all to one person or split it between several. You can roll the gifting allowance over for one year too. This is subject to other taxes, depending on how the gift is made.
- You can make smaller gifts of up to £250 to as many people as you like. This money moves immediately out of your estate as far as Inheritance Tax (IHT) is concerned.
- Any amount gifted to your spouse or civil partner is completely tax-exempt.
- You can make gifts over £3,000 – but your family may still pay IHT on that gift if you die within seven years or less after making the gift.
- If one of your children or grandchildren is getting married, either or both of you can gift up to £5,000 to a child, £2,500 to a grandchild or £1,000 to anyone else. On top of your annual £3,000 gifting allowance.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Making regular gifts
If you want to make regular gifts to family members, you can continue to gift over and above your annual allowances. Be aware, whenever you make a gift, it must be from disposable income. It must not impact your own standard of living.
You’ll need to be able to show that you’re not using money from savings to do this or impacting your own lifestyle.
Regular gifts can help:
- Cover household costs or care costs for elderly relatives.
- Pay for school fees.
- Help with mortgage repayments for children or grandchildren.
- Pay premiums on health or life assurance.
- Contribute to a Junior ISA (JISA), savings account or child’s pension.
Covering ongoing costs, such as care-in-the-home for parents or covering nursery or school fees can take a weight off everyone’s mind. And lighten your tax bill too.
Gifting and tax
You can gift money to anyone you like up to your gifting allowances, but there might be tax to pay if your gift is more than £3,000. There are certain exemptions. These include:
- Your husband, wife or civil partner, as long as they live in the UK
- Registered UK charities
- Some national organisations, like universities, museums and the National Trust.
There’s no limit on how much you can gift to these ‘exempt beneficiaries’.
Gifting a larger lump sum – a ‘living inheritance’
You may want to make a more generous gift of over £3,000, to help a family member get a mortgage, or start a business. Some people call this a ‘living inheritance,’ since they’re passing on money that would have been inherited – just sooner, rather than later.
You need to be aware of the 'seven year rule', and how the local authority might view this gift if you were to need care in the future, as well as making sure that any gift you make doesn't impact your current living standards and future needs for long-term care.
Gifting and inheritance tax
Gifting is a tax-smart way to reduce the value of your estate – the total amount you’re worth – and therefore the amount of Inheritance Tax (IHT) your family may need to pay.
When you die, everything you leave behind – from property to savings to valuables – is known as your ‘estate.’ The first £325,000 (known as the Nil Rate Band or NRB) of your estate can pass tax-free to your beneficiaries, but if your estate is worth more than that, your family will pay IHT of 40% on the amount above your NRB. If your main residence is left to direct descendants there is also a residence nil rate band (RNRB) of up to £175,000.
If you start gifting annual lump sums or regular amounts in good time, you can make a substantial difference to your family’s financial wellbeing in the here and now – and their IHT bill in the future.
**There are other potential IHT tax exemptions too – ask your financial adviser for more details.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
