The rules surrounding financial gifts to family members in the UK may seem simple, but they are full of complications, which can catch many off-guard. However, the good news is that there are plenty of tax exemptions available for use. In this blog post, we run through some of the different rules that apply to gifts given to adults and those given to children.
Whether you are seeking to pass on a tax-free gift to your family or the means to mitigate Inheritance Tax (IHT) on your estate, understanding the latest legislation and tax consequences or exemptions can help you make gifts tax-efficiently*. Importantly, there are limits to how much you can gift at any one time, as well as timelines for when a gift might still incur a tax liability. Read on to learn about some helpful ways to make tax-efficient cash gifts.
Please note: many of the ideas in this blog post involve an element of investing. As is the nature with all investing, your capital is at risk, and you may not receive back the same amount you put in when you choose to cash out your savings. In addition, the ideas set out in this blog post are based on our current understanding of UK legislation, impacting only those within the UK tax system.
William Stevens
Partner, Head of Financial Planning
What tax will I pay on my financial gifts?
There are two very important rules to be careful of when making financial gifts to avoid any unexpected consequences.
What should I consider when gifting to children?
Children qualify for special forms of tax relief designed to help them build savings for the future, that can go a long way to helping them to save more of the money they have been gifted. For the purposes of this blog post we are defining a child as someone aged 16 or under, rather than a dependent or direct relation to the giver.
Tax-efficient gifts can be transferred directly into a child’s Junior Individual Savings Account (JISA) or Child Trust Fund (CTF), which allows the child to take home the entire cash gift and allows them to build up their tax-efficient savings. For example, if you invested £9,000 on the day a child was born, this could be worth over £1,000,000 on the day they turn 70 (based on an average compounding rate of 7%)**.
One way to easily gift into a JISA or CTF is by using Silo Gift, a feature within our Silo app that allows grandparents, godparents, aunts, uncles, family and friends to directly contribute into a child’s Junior ISA or CTF. Silo Gift enables you to generate a unique link to send a cash gift from your nominated Silo account, which you can then send to the recipient via email, SMS, or WhatsApp.
Find out more about Silo and download the app here
When gifting to a minor as a parent, it is important to remember that should you not gift into a tax-efficient structure such as an ISA, you may be liable for any tax more than £100 that arises on the investment/cash because of gains, interest, or dividends. This mechanism is designed to stop parents simply allocating money to their children to mitigate future taxation.
What should I consider when gifting to adults?
More ways to make tax-efficient gifts to family members