When giving money at Christmas, not everyone considers the implications and legalities around taxation. There are ways to give financial gifts without incurring tax though, with some ideas and things to consider listed below...
Paying into Junior Isas are a great way of gifting cash to those under the age of 18. Anyone can contribute to a Junior Isa, so check with parents to see if there has already been one set up. Money in Junior Isas are not subject to income tax and capital gains tax. Any dividends paid on stocks held in an investment Junior Isa are taxed at just 10%. A maximum of £4,080 can be paid in during a tax year and cannot be accessed by the account holder until they reach 18.
Avoiding Inheritance Tax
Small gifts of money are not subject to inheritance tax, and everyone is allowed to gift £3,000 per year without being subject to inheritance tax (annual exemption). This amount can be carried over to the following year if unused too. Special occasions are also classed as an exception. If your child has got married, you can gift up to £5,000 tax free in the same year, this amount is reduced to £2,500 for grandchildren and £1,000 for other relations or friends.
Gifting Money to Spouses or Partners
Married couples and civil partners can pass unlimited amounts of money between themselves without incurring any inheritance tax.
Any money given to charity is free of incurring inheritance tax, which also applies when donating on behalf of someone else. Be sure to permit Gift Aid on any donations you do make – this allows the charity to claim back basic rate income tax from the government resulting in a 20% increase on your donation without costing you anything.