How to gift money in a tax efficient way.

Passing on wealth between generations in a tax-efficient way is a key part of financial planning. In this article, we will look at how to gift money in a tax-efficient way,  from passing on a pension to helping your children with a buy to let.

Here are some areas to discuss with our financial planners.

Financial planning with your pensions.

Currently, it is possible to pay up to £2,880 (2023/24) a year into a pension for each of your children. With tax relief at 20% added this goes up to £3,600.

You can also pass on what remains in your pension pot when you die. If you die before the age of 75, this can go to your children or grandchildren tax-free. If you die after the age of seventy-five, they will have to pay income on the pension at their marginal rate.

Furthermore, this flexibility is not available if you have already bought an annuity or in most cases if you have a defined benefits pension. Defined benefits pensions are other referred to as a final salary scheme.

Gifting money.

Giving money to your children and grandchildren is a great way of reducing your estate. You can handover as much as you like without any immediate tax implications. An issue only arises if you die within seven years of making the gift. The amount gifted will then be added back to the value of your estate for inheritance tax (IHT) purposes. Tax will then be charged at a sliding rate depending on how long you live after making the gift.

Some gifts are completely exempt. A parent can give to children up to their £3,000 (2023/24) a year free of IHT or £6,000 if no gift was made the previous tax year.

Parents can also give their children £5,000 ( 2023/24) towards a wedding or civil partnership. In addition, grandparents can give £2,500 (2023/24).

Additional gifts can be made provided they are made from your income and does not affect your standard of living.

Financial planning property perks.

What most children are looking for is a helping hand onto the property ladder. So, cash gifts can be made but be aware of the IHT implications previously discussed.

If you cannot afford to give your children cash, there are several financial products you could consider. Family springboard mortgages or guarantor mortgages are all designed to help. Our team of mortgage advisers will be able to recommend the most suitable.

Lending money to your children to help them purchase a buy-to-let property is another way to create an income from the profits. You will need to draw up a legal document to cover when the money is to be repaid and what happens if the property sells for a profit or a loss.

How we can help you to gift money.

The above information is for guidance only. We would recommend that you arrange a meeting with one of our expert financial advisers. At the first meeting, we will get to know your situation and what you are trying to achieve. This first meeting is at our expense.

Meetings can be arranged at a time and location that is convenient for you. Furthermore, you can meet at our office or your home.

Our Head Office is  located at-

• Kettering, Northamptonshire.

Also, our team of financial planners live and make use of meeting rooms in-

• Bedford, Bedfordshire
• Market Harborough, Leicestershire
• Northampton, Wellingborough and Thrapston in Northamptonshire.

Finally, if you want to find out more about how to gift money, why not arrange a meeting today?

Our expertise covers all aspects of financial planning including pensions, investments, and mortgages.

If you have any thoughts or comments on this article, “How to gift money in a tax efficient way.”, then it would be great to hear your views.

The information contained in this article is for information purposes only and does not constitute advice. No action should be taken based on this information alone. Anstee & Co is authorised and regulated by the Financial Conduct Authority (FCA).

AS A MORTGAGE IS SECURED AGAINST YOUR HOME, IT COULD BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS.