Archived articles
Although the content of the article(s) archived were correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.
Gifting money to children, family and friends – Making the most of surplus monthly income
In a recent article on inheritance tax planning, I mentioned gifting money as one way to maximise the benefit your family and friends get from your estate.
Through gifting[1], you see them enjoy your money and move towards achieving their financial goals while you're still alive. You can also be reassured that it minimises the inheritance tax they'll pay when you die.
I want to use this article to explain one aspect of gifting – ‘normal expenditure out of income’ – that you may not be aware of.
Firstly, everyone gets an annual tax-free gifting allowance of £3,000, and an additional £3,000 if you didn’t use your allowance the previous year. This can come from savings or even a lottery win!
You may not know that you can gift on top of this annual allowance if you can prove that you have a monthly surplus income that you don’t use. For instance, if you earn £5,000 per month and your regular outgoings are £3,500, then your surplus is £1,500, which could be gifted.
There are limitations, however.
- You have to gift from your regular monthly income. Donations can’t come from investment or savings accounts, even if they’re assets that resulted from you investing your income
- You must be able to afford the payments after meeting your living costs, such as mortgage, food and utilities, and those that maintain your lifestyle, such as annual holidays and a new car every three years. You cannot stop certain activities in order to gift more.
If you plan on gifting from your regular income, establish the amount you can give by noting your income and outgoings over several months. Review it regularly and make a note of any changes
You can gift to your children and grandchildren directly or deposit the money in their savings accounts or ISAs to help prepare them for university or buying their first home. You can even add to their pension pot or look at other tax-efficient investment opportunities.
For instance, depositing £300 per month into your grandchild’s Junior ISA could see the investment grow to £77,611 by the time they turn 18, helping them complete their university course debt-free[2].
These figures are examples only and they are not guaranteed - they are not minimum and maximum amounts. What you get back depends on how your investment grows. You could get back more or less than this.
By gifting, you can help make life easier for your loved ones and reduce your tax burden at the same time. I can help you devise a plan that works for you. Contact me today to arrange a no-obligation meeting.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.
[1] Gov.uk website Inheritance tax/gifts
[2] Cash flow model calculation using Voyant assuming regular contribution of £300 per month. Growth rate after fees of 5.59%. Child is 4 years old. Access to the plan age 18.
