Before Christmas, we discussed how to avoid paying too much tax when giving gifts, and now we are looking at other examples of giving family members more while ensuring that your tax liabilities remain minimal.
Grandparents who have made wise investments or saved sufficiently often find they have more income than they need to maintain their desired standard of living, so one way to give grandchildren gifts of money is to use this to avoid future inheritance tax (IHT).
There are some caveats, with gifts required to be regular, but if the grandparent keeps clear records to can prove that this is excess income, the gifts are immediately free of IHT.
Another way to make gifts to grandchildren is to gift investment bond segments. Investment bonds are life assurance policies, usually made up of multiple segments, which can be assigned to grandchildren aged 18 or over.
The tax treatment of an investment bond means that when segments are gifted from one person to another, any taxable gain attached to the segment passes with the gift, so will not cause a tax charge for the grandparent.
As ever, there is a caveat regarding the tax-free angle, in that the grandparent must live for another seven years after giving it but the sums can be useful for things such as topping up university fees.
It is also tax effective for the adult children, as they can make gains of up to £18,500 tax-free using their £12,500 personal allowance plus the £5,000 starting rate for savings allowance, and the £1,000 personal savings allowance permitted on top of that.
For help and advice on matters relating to personal tax, contact our expert team at Milsted Langdon today.