Making tax-smart gifts this Christmas

At a glance

  • Giving the gift of money or valuable assets this Christmas can help create financial wellbeing for the whole family.
  • Tax-smart giving moves money across generations – as tax-efficiently as possible.
  • You can pick from cash gifts, gifts to trust, children’s pensions or Junior ISAs, even helping pay for an upcoming wedding or civil partnership. Go Christmas shopping.

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 this Christmas

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 focus 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 knowing what you’re 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.

Opening a Junior ISA

Like all ISAsJunior ISAs(JISAs) , are tax-efficient savings opportunities for children. As their parent or legal guardian, you can open one for any child under 18 who’s living in the UK (there are some exemptions for children living outside of the UK). Once opened, anyone can make contributions.

This year’s annual savings limit for Junior ISAs is £9,000. A child can have control of the account at 16, but they can’t make a withdrawal until they’re 18 – at which point they have access to the funds or can roll it over into a standard ISA and keep saving. ISAs are a simple and convenient way to save – and your younger family members would be able to access their savings far earlier than money saved in a child’s pension. 

If you start a JISA early, the money will benefit from compound interest, and even a small amount saved regularly over time could make a real difference when your children come of age.

You could choose either a Stocks and Shares Junior ISA or a Cash Junior ISA, so to decide which is best for you, do speak to us. Some savers are prepared to accept a slightly higher level of risk if they expect that the money will stay invested for quite a long time.

Starting a child’s pension

Realistically, if you’re 8 years old and it’s Christmas morning, a child’s pension is not going to beat a Lego build or Squish mallow plush. But as a parent or guardian, opening a child’s pension on their behalf is a thoughtful, farsighted gift that will help get them into good savings habits early, and give them a real head start when they grow up.

Only a parent or legal guardian can open a child’s pension, but anyone can contribute to it. Setting one up is pretty straightforward, but you should always discuss what you’re thinking of doing with the rest of your family and speak to us to make sure you’re claiming the correct tax relief.

A child’s pension may just be the best Christmas present they never knew they wanted.

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 amounts. This is currently £6,000 each (£12,000 for a couple) but 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.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

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

Please note that St. James’s Place does not offer Cash ISAs.

SJP Approved 20/11/2023