Jill feeding lambs in her field

Real Family Finances

Gifting money tax-efficiently

Advice on how to enjoy sharing your wealth with loved ones

Like many parents, Rob and Jill Davis want to give their daughters Emily and Lucy financial help. Mathew Donn, Chartered Financial Planner at NFU Mutual, outlines the most tax-efficient way to gift money.

Gifting money to family is a simple way of giving them a helping hand in life, but satisfying the taxman is not quite so straightforward.

Many parents and grandparents want to help out the younger generation by gifting them money or assets for all sorts of reasons, whether funding a property deposit, helping with education fees or offering funds to help them set up a business of their own.

Reduce your Inheritance Tax liability

Done correctly, gifting money can also help reduce the family's Inheritance Tax (IHT) liability, so it’s important to understand all the rules.

Some gifts are immediately exempt from IHT and therefore won’t be included in your estate. These include:

  • Up to £3,000 each tax year — and if you didn’t use the previous year’s allowance you could give away £6,000 exempt from IHT
  • Unlimited gifts from your income — provided they are regular and don’t impact your normal standard of living. You should keep records of income and expenditure as your family may require this as evidence after your death.

Most other gifts are not counted towards the value of your estate as long as you live for at least seven years after making them.

Gifting assets or investments?

If Rob and Jill were considering gifting property or investments to their children rather than money, there is another tax to think about. Capital Gains Tax (CGT) can be charged on the person making the gift.

People are often surprised to learn that they may have to pay CGT when they gift a property. There are some valuable exemptions available if gifting qualifying farming or other business assets. The rules are complex, so it makes sense to take advice before making a gift.

Other things to consider

For those receiving a cash gift from their parents or grandparents, there are normally no Income Tax implications, however there can be an emotional pressure to use the money in the ‘right’ way.

As the gifter, if you want to maintain a say in how the money is used, you may want to consider putting money into a trust. This could allow you to exercise control as a trustee. There are different types of trusts with different tax treatment — it’s important to get advice on your options.

Alternatively you may decide to lend money rather than give it as a gift. Read more about loaning money to your relatives.

Speak to the experts

Getting financial advice can help families understand all the options and make the right decision for them. NFU Mutual Financial Advisers can help you and your family plan for the future. Find out more about our Financial Planning Service.