Christmas gifting – your tax tips

At a glance

• Gifting money or valuable assets this Christmas can make a real difference to the financial wellbeing and security of the whole family.
• Tax-smart giving moves money across generations – as tax-efficiently as possible.
• You can pick from cash gifts, gifts to trusts, children’s pensions or Junior ISAs, even helping pay for an upcoming wedding or civil partnership. Go Christmas shopping – without the crowds.

Putting a tax-smart gift in their Christmas stocking

Gifting cash, or gifting assets is a present that keeps on giving. It’s practical, thoughtful – and it can make so many things possible. A cash gift could pay for a family holiday, cover extra days at nursery for a new grandchild, or it could start a savings pot that will make a dream come true.

And cash gifts aren’t your only option. There are many tax-smart ways to gift your family – any of which could save you a significant amount of tax.

Here are just some of your options:

Making a Christmas cash gift

Gifting cash could be a welcome boost to those you love, and the effect can last longer than you think. Gifting is now an even more powerful way to mitigate your Inheritance Tax liability too. You can give away up to £3,000 a year, as well as making any number of small gifts of up to £250, which reduces the size of your estate, and therefore your IHT liability.

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.

Melloney Underhill, Head of Consumer 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 – what happens after you’re gone. Now, more of us want to help our families during our lifetime. Especially since it's no longer possible to pass on an unspent pension pot tax-free."

If you’re considering gifting a big sum to younger family members, you may want to talk to a financial adviser about making a gift in trust. This means that you can stipulate how, when and why the money can be accessed, so you have control over the gift, even though it’s no longer yours.

Remember to keep records of the amounts and dates of any gifts you make, for IHT purposes, and your own annual tax return.

Giving a Junior ISA for Christmas

Like all ISAs, Junior ISAs, or JISAs, are highly tax-efficient, and a great opportunity to get children into the habit of savvy saving. As their parent or legal guardian, you can open a JISA for any child under 18 who’s living in the UK (there are some exemptions for children living outside of the UK). But once opened, anyone can contribute – so you could be starting a new Christmas tradition!

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, flexible way to start saving – and your younger family members will have access to their savings far earlier than money saved in a child’s pension.

“Starting early opens up choices and opportunity,” Melloney says. “Opportunities and choices that can increase your confidence in the financial wellbeing and security of the whole family.”

Why choose a Junior ISA?

Starting a JISA early means you get even more benefit from compound growth. Even a small amount saved regularly over time could make a real difference, when the time is right.

You could choose either a Stocks and Shares Junior ISA, or a Cash Junior ISA, – a financial adviser can help you decide which is best for you, and your family member. You may feel that you’re prepared to accept a slightly higher level of risk, if you expect the money to be invested for the mid- to long-term.

Starting a child’s pension

Realistically, if you’re eight years old, a child’s pension is not going to be up there on the Christmas list alongside the latest branded robotic pet or lego set. But as a parent or guardian, thinking ahead and starting a pension on their behalf is a thoughtful long-term gift that sends all the right messages about putting extra money aside, and saving regularly.

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 it’s a good idea to share what you’re planning 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 turn out to be the best Christmas present they never knew they wanted.

Making a gift for someone’s ‘big day’

If there’s a wedding or civil partnership coming up in your family next year, you can make a tax-free cash gift to help pay for the wedding or honeymoon. And there’s another tax benefit too –gifts to pay for weddings or civil partnerships are exempt from IHT*. That’s 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 from Santa.

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

Keeping on the right side of Capital Gains Tax

Without wanting to be The Grinch that stole Christmas, do remember that asset-based gifts – even Christmas ones – could end up 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 need to pay 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 amount. This is currently £3,000 in the tax year 2024/25. CGT for basic rate taxpayers rose in the Autumn Budget, and is now 18%, and 24% for higher and additional rate taxpayers. So, if you’re planning on gifting money or any other valuable assets, it’s worth checking in with us to make sure there won’t be receiving any unexpected ‘Christmas presents’ yourself, from HMRC.

And a very Merry Christmas!

Whatever path we choose in life, money will be part of making it happen.

So, start giving, and have a very merry, tax-savvy Christmas! Need help getting your head around gifting and tax? We're here to help - get in touch today.

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. Tax relief is generally dependent on individual circumstances.

A stocks and shares ISA does not provide the security of capital associated with a cash ISA.

St. James's Place do not offer a cash ISA or JISA.

Trusts are not regulated by the Financial Conduct Authority.

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