3 questions to ask yourself if you’re planning to gift money this Christmas

Are you planning to offer a financial gift to a loved one this Christmas? Here are 3 questions to ask yourself before you do, and how we can help.

As the Christmas season approaches, you may be considering the types of gifts your loved ones would benefit from this year – particularly your adult children. While the cost of living crisis continues to put strain on younger people’s finances, giving them money in lieu of a physical gift could be on the cards.

Although money can make a brilliant Christmas gift, especially for young family members who are just getting started in the adult world, it’s crucial to consider the long-term impact of giving large amounts of wealth away.

Indeed, whether as a one-off or part of an intergenerational wealth strategy, large transfers can have an impact on the wider circumstances of both you and the recipient of the gift.

So, before you offer funds to your loved ones this Christmas, here are three questions to ask yourself about this move, and what we can do to help.

1. How much have I already given away this year?

If you have already given money away as a gift (not as regular income) in the 2023/24 tax year, it’s important to factor this into your Christmas plans.

Remember, each individual has an “annual exemption” of £3,000 a year. This annual exemption marks how much you can give away each tax year without facing an Inheritance Tax (IHT) charge – meaning that gifts over this sum could be subject to a tax bill (more on this later).

For instance, if you already gave £1,000 to your child in May 2023 to help them pay for a new car, you can now only give away £2,000 tax-efficiently within the same tax year. This is true even if the remaining money would be given to someone else.

If the total amount you give away over the whole tax year surpasses your £3,000 annual exemption, the portion above this threshold could be liable for IHT later on. If you were to pass away seven years or less after the money is given, the amount in excess of £3,000 could still count as part of your estate, and could contribute to an increased IHT bill as a result.

It’s worth noting that your spouse or civil partner will also have this annual exemption, and you can carry forward unused annual exemption from the previous tax year. So, you might be able to pass on up to £12,000 in a single tax year and have the entire amount fall outside your estate.

You can also make small gifts of up to £250 per person to as many people as you like, providing they haven’t received money from you under another exemption. This money will also typically fall outside your estate.

As you can see, this could be complicated. So, it could be prudent to calculate how much you’ve already given away in financial gifts this year before offering a sum of money as a Christmas present.

2. Do I mind what this money is used for?

One often-overlooked part of giving a large sum of money away as a gift is that you can’t always control what it is used for.

Even if you give this wealth with a specific purpose in mind, such as helping your adult child buy their first home, there is no guarantee that the recipient will abide by your wishes.

If you have no agenda in giving the money away, then this shouldn’t be an issue – after all, once you have parted ways with the funds, they are no longer yours to control. But if you would rather offer the gift with the condition of it being used for a specific purpose, there are a few further options you may wish to consider.

· Ringfencing the funds in trust for a specific person and purpose. If you’d like to designate funds for a loved one without simply conducting a bank transfer, using a trust can help you ensure that the money is used for a specific person, by a certain person, and at a certain time if you wish.

· Save or invest the money on the recipient’s behalf. For instance, if the funds are set to help a child buy a property, you could set the money aside in a savings or investment account and only transfer it across when they are ready to make an offer on a home.

· Discuss your intentions with the recipient. While you can’t control how the financial gift is spent once you give it, talking your intentions through with your family member could put both your minds at ease.

Keeping these options in mind could come in useful as you’re preparing to offer wealth as a gift this Christmas, especially if the money is designated for a specific purpose.

3. Does parting with this money fit into my long-term financial plan?

When making any significant transfer of wealth, thinking ahead could be an extremely constructive move.

Not only should you feel comfortable that you can afford to part ways with this money now, but also that it is unlikely to put your future financial viability at risk.

So, as you’re preparing to make a financial gift this Christmas, perhaps consider discussing the potential impact on your wealth with a Kellands financial planner first. Our experts are equipped to help make your goals possible, including giving financial gifts to your loved ones, and can adjust your financial plan according to these wishes.

What’s more, we can talk you through the specific tax implications of any financial gifts you offer to others, whether as a one-off or on a regular basis. If you’d like to include the recipient of the gift in these conversations, we’re happy to discuss these plans with anyone you choose to involve.

Get in touch

To discuss the prospect of offering financial gifts to your loved ones, either at Christmas or at any other time, email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.


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