Making tax-smart gifts this Christmas

Putting a tax-smart gift in their Christmas stocking 

Christmas is the time for giving, but this year, many of us still need to watch every penny.  With many families still feeling the pinch, money may be one of the most practical and welcome gifts you could give your children this year. Gifting cash, or gifting assets is a present that keeps on giving. Helping to pay towards a family holiday in the summer, or nursery fees for a new grandchild, means the whole family shares in the experience – and the memories.

There are many tax-smart ways to gift cash or assets to your nearest and dearest – any of which could save you a significant amount of tax. 

Here are just some of your options: 

Making a cash gift

Gifting money at Christmas doesn’t just mean gold chocolate coins tucked in the toe of the stocking. This year, gifting cash could be a welcome boost to those you love, and it can benefit your legacy planning, too. You can give away up to £3,000 a year, as well as making any number of small gifts of up to £250 each, as part of your planning around Inheritance Tax (IHT) mitigation. Almost all gifts are exempt from IHT if you survive for seven years after giving. And if you didn’t use your tax-exempt gift allowance last year, you can roll it over for one year, provided you use the previous years’ allowance first.

Melloney Underhill, Head of Marketing Insights at SJP, says that financial gifts to family members are definitely becoming more common, as people want to see their wealth put to good use in their lifetime: “Previously there was more focused on legacy planning. Now, it’s much more equal, with people wanting to support family now as well as leave an inheritance.”  But, of course, you still need to be mindful that you don’t give away more than you can afford. So finding what you are comfortable with is key.

Also consider making a gift to a trust as this provides further control over how the funds are used in the future along with protection from divorce and IHT.

Do make sure you keep records of the amounts and dates of any gifts you make, for IHT purposes. 

Helping to pay for a big event

If one of your children or grandchildren is getting married or entering a civil partnership next year, a cash gift to help pay for the wedding or honeymoon is a lovely way to congratulate them – and help out with the expense. Once again, there’s a benefit to you too – gifts to pay for weddings or civil partnerships are exempt from IHT*. Plus, they’re in addition to the £3,000 annual gift allowance exemption. If you were planning to help with the costs anyway, this is a really effective tax-smart gift idea. 

*You can give away up to £5,000 to a child or £2,500 to a grandchild who’s getting married. 

Keeping clear of Capital Gains Tax

Without wanting to be The Grinch at the Christmas party, do remember that gifts – even at Christmas – could be liable for Capital Gains Tax. This includes all gifts to family members, except spouses and civil partners.

Any gifted asset has a market value – and in theory, the recipient could be liable to CGT if there is a significant gain on the asset, compared to what you paid for it.

Luckily there are a number of exemptions to CGT, including an annual tax-free allowance.  This is currently £6,000 each (£12,000 for a couple) and it’s set to drop to £3,000 in the tax year 2024/25 (don’t forget you can carry forward last year’s allowance as well). Even so, if you’re planning on gifting money or any other valuable assets, it’s worth checking in with us to make sure you won’t get an unexpected ‘Christmas present’ from HMRC in the post.

So, start giving, and have a very merry, tax-savvy Christmas!

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.