Giving money for Christmas can be the gift that keeps on giving for families by boosting financial security for children and grandchildren and minimising potential tax bills for parents and grandparents, Investec Wealth & Investment (UK) says.
But financial gifting needs to be carefully planned in order to be as tax efficient as possible, urges Investec Wealth & Investment, a wealth manager, which is part of Rathbones Group PLC.
It highlights the most recent Inheritance Tax (IHT) figures* for April to August this year which shows £3.2 billion was collected by the Government with a record £795 million paid in June this year.
It’s an ongoing issue - IHT receipts are expected to keep climbing and forecast to reach £8.4 billion** by the 2027/28 tax year due to a combination of rising wealth and a freeze in IHT thresholds at their 2020/21 levels to 2027/28.
Currently no tax is due on the first £325,000 of any estate but that rises to £500,000 if a property is being left to children or grandchildren for estates under £2 million. Married couples and civil partners can leave up to £1 million tax-free.
Faye Church, Chartered Financial Planner, Investec Wealth & Investment (UK), said: “Gifting to children or grandchildren could be a tax-efficient way to help to improve their financial security, help them pay university tuition fees, pay off student loans or even get them on the property ladder.
“You can gift money from spare cash, invest in a Junior ISA or a trust for younger relatives if you are scratching your head wondering what to get your loved ones for Christmas this year. People giving gifts will get to see loved ones enjoy the money instead of having to wait to inherit the money.
“Gifting needs to be carefully planned and Investec Wealth & Investment can help with how best to use any exemptions and allowances, calculating how much is affordable to gift and structuring investment portfolios in the most inheritance tax efficient way”
The best ways to give financially this Christmas include Gifting from Surplus Income, Junior ISAs and Bare Trusts but don’t forget Annual Exemptions, Small Gift Exemptions and Charitable Giving.
To qualify for Gifting from Surplus Income money has to come from income rather than capital, form part of a regular pattern and not affect everyday standards of living. It is very useful for people with significant pension income as well as those with rental and investment income. Lump sum payments from insurance policies or the capital element of life annuities do not qualify. It’s important to record the first gift and make clear that it is part of a series of gifts as that ensure it is immediately outside the estate.
Junior ISAs need to be set up by parents or legal guardians but once they are set up anyone can contribute. Contributions in any tax year should not exceed £9,000. There are no investment limits for Bare Trusts and the money can be used by grandchildren at any time for any purpose. Money is taxed as if it is held by a child and regular contributions by grandparents from surplus income are exempt from IHT.
The Annual Exemption allows £3,000 to be given away a year without being added to the value of an estate and can be carried forward for a year meaning individuals can give £6,000 and couples £12,000 if they’ve not used the exemption previously.
The Small Gift Exemption is £250 with no limit on the number of people it can be given to and £2,5000 can be given for a marriage or civil partnership. Leaving 10% of your net estate to charity will reduce the IHT rate to 36% from 40% under Charitable Giving rules.
As one of the UK’s leading discretionary wealth managers companies Investec Wealth & Management, part of Rathbones Group PLC, focuses on a relationship-based approach to Financial Planning and Investment Management with the purpose of making a tangible and meaningful difference to clients and their families. For more information on its services for individuals and their families Wealth management & financial planning services (investec.com).
Notes to Editors
Tax treatment depends on the individual circumstances. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practise and can be subject to change in the future.
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About Investec Wealth & Investment (UK)
As one of the UK’s leading wealth management firms, we are trusted with managing £40.7 billion (as at 31 March 2023) of our clients’ money. Our wealth teams work hard at providing Out of the Ordinary levels of service to our clients and with an investment heritage dating back to 1827, we’re built for the long term.
Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN. Member firm of the London Stock Exchange.
Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.