Inheritance Tax  

How much can clients gift children and grandchildren tax free?

How much can clients gift children and grandchildren tax free?

More people are “often unknowingly” falling into the inheritance tax net, according to an industry expert.

Following a surge in inheritance tax receipts received by HM Revenue and Customs, Standard Life’s managing director for customer savings and investments, Jenny Holt said it is useful for individuals to know about the number of tax efficient ways they can pass on wealth to their loved ones.

“Sharing wealth with children and grandchildren can provide a wonderful sense of well-being and joy for people aiming to pass on part of their savings to family members, often to help with big expenses such as weddings or education fees, to pay off debt or get on the property ladder,” Holt said.

But even though an individual can gift as much of their money to loved ones as they wish, Holt said it is vital that individuals are aware of the tax implications of intergenerational gifting.

Normally IHT only needs to be paid by an individual if the value of an estate is above the £325,000 threshold, with anything above this amount typically taxed at 40 per cent. 

But despite the value of people’s property assets increasing over time, particularly during the pandemic, this main IHT tax free allowance of £325,000 has not increased since 2009.

Over the past year, HMRC collected an extra £729mn in inheritance tax receipts, the largest single-year increase in five years.

Holt said despite it being a complex area, there are a number of tax-efficient ways an individual can support their loved ones and outlined tips for gifting to children or grandchildren tax-free.

Give regularly

An individual can gift up to £3,000 to anyone in a tax year, and gift £250 to as many people as they wish without paying any IHT. 

“This can be carried forward one year but if you don’t use it then, you will lose it,” Holt explained. 

Open a junior ISA

Holt said: “You can open a Junior ISA for your child or save into one on your grandchild’s behalf”.

Currently, an individual can pay up to £9,000 in total in a tax year into a JISA and that money can be invested, which gives a chance for their savings to increase over time. 

The child can access the money when they reach the age of 18 and they will not pay any tax on anything they withdraw or pay capital gains tax on any investment growth either, Holt explained. 

“There’s also the option to support their Lifetime ISA – which can be opened by anyone between the age of 18 and 39 and could help them save for a property or boost their pension savings."

Consider a trust 

A trust allows an individual to support their grandchild while they are still around and also offers a number of tax advantages, according to Holt.

“As a trustee, you retain an element of control over the funds, while gifts made to the trust can reduce your estate for IHT.