Insights

Tax-smart gifts you can give your family this Christmas

By
Adrian Howard
on
June 15, 2022

As Christmas approaches, everybody wants their loved ones – and especially their children – to be happy on the big day.

  • Financial gifts allow you to make a lasting contribution to your family’s short and long-term futures.
  • There are many ways to give money to loved ones, from contributing to a children’s pension or ISA to cash gifts and wedding contributions.
  • To ensure your present is effective for the recipient and tax efficient for you, speak to your St. James's Place Partner for advice.

As Christmas approaches, everybody wants their loved ones – and especially their children – to be happy on the big day.

Good food and time spent with the family are important ingredients for an enjoyable festive season, but when it comes to presents, why not think a bit more creatively than a pair of socks or an unwanted gift set?

Instead, you could consider giving a financial gift to your nearest and dearest. It’ll not only make you and the recipient feel good, but, if you take the right advice, it could also save you a lot of money in tax.

If you are thinking about how you can help your children or grandchildren for the future, as well as on the day itself, here are some ideas.

Children’s pension

While kids look forward to opening the latest Xbox on Christmas Day, they will certainly benefit over the long term from a children’s pension. This is a tax-efficient way to save for a child's future and a good way to give a young person a head start.

The benefits of setting up a junior pension are likely to become even greater in the years ahead.

When children enter the workforce a decade or more from now, for many, paying into a pension is possibly the last thing they will be thinking about – it is going to be difficult enough to contend with house prices, technological changes and salary negotiations.

As a parent or grandparent, providing a junior pension is a thoughtful gift to help improve their future finances.

A children's pension must be set up by a parent or guardian, but after that, anyone can contribute to it on the child's behalf.

Setting one up is relatively straightforward, but you should discuss options with your St. James's Place Partner and involve other members of the family when coming to a decision.

Junior ISA

Providing more flexibility over the medium term than a junior pension, Junior ISAs are a tax-efficient savings opportunity for children. They can be set up by a parent or guardian for any child under 18 who lives in the UK (there are some exemptions for children living outside of the UK1).

The annual savings limit for Junior ISAs is £9,000 and the child is unable to withdraw cash from the account until they are 18, making it accessible far earlier than a junior pension.

Broadly speaking, there are two options – a Stocks & Shares Junior ISA or a Cash Junior ISA. Again, speak to your adviser for a rundown of the best options.

Cash gifts

Giving cash for Christmas can be a generous and practical way to support loved ones and can also help you with estate planning.

You can give away up to £3,000 a year, as well as making any number of small gifts up to £250, 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.

Ensure that you keep records of the amounts and dates of your gifts for IHT purposes.

Pay for a wedding

If you want to give a cash gift that you can be sure will support your children or grandchildren, offering to help pay for a wedding is a good option to consider.

Gifts to pay for a wedding or civil partnership are exempt from IHT and are considered separate to the £3,000 annual exemption described above. It is a particularly good idea if you were likely to contribute to wedding costs anyway.

You can give up to £5,000 to a child or £2,500 to a grandchild. With many weddings taking place in the summer, Christmas is a good time to make this tax-smart gift to a loved one.

Remember Capital Gains Tax

Although hardly in the spirit of Christmas, it is always worth remembering that gifts, even to family members (excluding a spouse or civil partner), are potentially subject to Capital Gains Tax (CGT).

A gift of an asset is given a market value and you are, in theory, liable to CGT if there is a gain on the asset compared to what you paid for it.

Many exemptions apply to CGT, not least an annual tax-free allowance of £12,300.

If you are considering giving a valuable asset as a Christmas present, make sure you discuss this with your St. James's Place Partner first.

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.

Source:

1 Junior Individual Savings Accounts (ISA), UK Government, accessed 1 December 2021