As we approach the end of the tax year, there’s still time for you to support your family finances, and ensure you use your allowances in an efficient manner.
Kick start your child’s financial future
Saving for your children’s future is a huge responsibility, although a rewarding one. To give your child a head start in life, you can open a child’s pension or a Junior ISA.
Both can be opened and managed on behalf of the child by a parent or guardian until the child’s 18th birthday. The pension limit is currently set at 100% of the child’s earnings (if applicable) or £3,600, whichever is the lower amount, but funds cannot be used until retirement, whereas the Junior ISA funds can be accessed after the age of 18 and could be used for things like university education or first home deposit.
The gift that keeps on giving
Gifts can be a great way to express love, appreciation, and support to your loved ones, but you can also use them to your tax advantage. As of 2023/2024, you’re entitled to an annual tax-free gift allowance of £3,000. This is also known as your annual exemption. With your annual gift allowance, you can give away assets or money up to a total of £3,000 without them being added to the value of your estate.
If you don’t use the full £3,000 gift allowance in one year, you’re allowed to roll it over to the following year. However, you’re only allowed to do this once, so you can’t roll any allowance you haven’t used over for a second year. If you use an unused allowance as well as this years, it would allow married couples or those in civil partnerships to gift up to £12,000 in one tax year.
If you die within seven years of making cash gifts of more than £3,000 in any one tax year, it may be included in the value of your estate and therefore potentially liable to inheritance tax. This is known as a potentially exempt transfer, or PET.
Additional gifts exempt from inheritance tax
Individuals are allowed to make additional gifts for special events such as Christmas, weddings, and birthdays. You can make gifts to family members, if you can prove the gift comes from your income and doesn’t affect your standard of living. In other words, to remain exempt from inheritance tax, once you’ve given the gift, you must still be able to maintain your usual standard of living.
Charitable donations and gifts to institutions such as art galleries, museums and heritage funds are also exempt from gift tax. In fact, giving to a registered charity may be a good way to reduce your income tax liability, particularly if you’re a higher rate or additional rate taxpayer.
Even if you don’t need to pay inheritance tax on gifts from parents, bear in mind that there may be other tax implications to consider. Income or gains arising from the gift could result in a capital gains tax charge for example. Whereas If you sell your assets gradually over several years, instead of all at once, you can keep the gains just within the annual allowance and reduce capital gains tax liability.
In a nutshell
There is still time to use your tax and pension allowances efficiently before the end of the tax year. Reach out to us today for guidance on building a financially strong future for you and your family.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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