Making tax-smart gifts this Christmas

At a glance

• Giving the gift of money or valuable assets this Christmas can help your family’s financial wellbeing.
• Tax-smart giving helps your finances too, as well as the person receiving the present – talk to us to discover how.
• You can choose from cash gifts, children’s pensions or Junior ISAs, even helping pay for an upcoming wedding.

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Putting a tax-smart gift in their Christmas stocking

Christmas is the time for giving, but this year, many of us are realising that we’ve got to be a little more careful and cannier with our money. In fact, money may be one of the most practical and welcome gifts we can make to our children or grandchildren this year. Gifting cash, or gifting assets is a present that keeps on giving – whether that means a family holiday in the summer, or helping provide for the financial wellbeing of a much loved grandchild.

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 cash gifts 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 ‘helping hand’ 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 £3,000 tax-exempt gift allowance last year, you can roll it over for one year.

Do bear in mind you’ll need to keep records of the amounts and dates of any gifts you make, for IHT purposes.

Opening a Junior ISA

Like all ISAs, Junior ISAs 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.

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.

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 Hot Wheels truck, or this year’s must-have toy. And even when your grandchildren start their first job, paying into a pension is probably the last thing they’ll be thinking about.

As a parent or guardian, opening a child’s pension on their behalf is a thoughtful, farsighted gift that will help get into good savings habits early, and give them a real head start.

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

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 wanted at the time.

Helping to pay for a wedding

If one of your children or grandchildren is getting married 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 £12,300, but from April 2023 it will reduce to £6,000 and then again in the following tax year 2024/25 to £3,000. Even so, if you’re planning on gifting money or any other valuable assets, it’s worth checking in with us to make sure there’s no unexpected late Christmas present from HMRC.

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.

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