How much can I gift to my grandchildren for Christmas?

Little boy is laughing as his grandfather tells him a joke from a christmas cracker at the dinner ta

Ask the expert at Smith & Pinching about Inheritance Tax (IHT) rules for gifting cash at Christmas - Credit: Getty Images/iStockphoto

With Christmas coming up, I’d like to give money to my six grandchildren. I was thinking of giving them £1,000 each, but my daughter says that I can only give £500 as there is a £3,000 annual limit on gifts. Is that right?

Matthew Beck Chartered Financial Planner with Smith & Pinching

Matthew Beck is a Chartered Financial Planner with Smith & Pinching - Credit: Smith & Pinching

Matthew Beck of Smith & Pinching responds:

The answer to this question will depend on your financial situation. The limit that your daughter referred to is one that concerns Inheritance Tax (IHT), so if your total wealth is less than the Inheritance Tax (IHT) exemptions available to you, then you don’t need to restrict what you give away for any reason other than what you can afford.

If IHT is a potential issue, then there is a range of gift allowances that are automatically exempt from IHT. These include a total gift allowance of £3,000 per year, plus any number of gifts of £250 or less to people who haven’t received other gifts from you during the year. There are exemptions for wedding gifts and gifts to charities and political parties, too. If you regularly have surplus income, you can also benefit from a further exemption, provided you meet the conditions involved.

The amount of IHT exemption available to you on your death, other than your gift allowances, will depend on a number of factors such as the size of your estate, whether or not you are married or in a civil partnership, and if you own your home and plan to leave it to your children or grandchildren.

Whatever your potential future IHT liability, there is nothing to stop you making your planned gifts. Any gifts that you make in the last seven years of your life may be treated wholly or partly as still in your estate (and if lifetime transfers are involved, potentially up to 14 years before your death) and taxed accordingly, but that shouldn’t necessarily rule out what you want to give away now.

I think you would benefit from independent financial advice from a firm of Chartered Financial Planners to ensure that you understand any potential IHT liabilities you may incur and to allow you to plan your gifts now and in the future. We work closely with families to help them pass wealth down through the generations in a tax-efficient way, making sure that those making gifts remain financially secure in their lifetimes.

Any opinions expressed in this article do not constitute advice.

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