Top 6 Tips for Gifting Money to Children Without Tax Surprises

1. Understand the UK Inheritance Tax Rules

The first step when gifting money to children is understanding how inheritance tax (IHT) works.

In the UK, gifts made during your lifetime may be exempt from IHT if you survive for seven years after making the gift.

Gifts to spouses or civil partners are usually exempt, but gifts to children fall under the “potentially exempt transfers” rules. Knowing these rules helps you plan gifts that avoid unexpected tax liabilities.

2. Make Use of Annual Exemptions

Each tax year, every individual has an annual gift allowance of £3,000.

This means you can give up to £3,000 to your children each year without it affecting your estate for IHT purposes. If you haven’t used the previous year’s exemption, you can carry it forward, potentially allowing up to £6,000 in tax-free gifts.

When gifting money, children benefit greatly from these allowances, and taking advantage of this is one of the simplest ways to reduce the tax impact.

3. Consider Small Regular Gifts

Small gifts of up to £250 per person per tax year are also exempt from IHT.

By combining this with annual exemptions, you can gradually gift larger amounts without triggering a tax liability.

Regular gifts for special occasions, such as birthdays or graduations, are also exempt, making this a flexible strategy for supporting your children.

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Therefore, when gifting money, consider how even small gifts to children can become tax-efficient over time.

4. Use Gifts for Educational or Living Expenses

Gifts made directly to cover children’s school fees, university costs, or living expenses are exempt from IHT, as long as the payments are made directly to the institution or provider.

Structuring gifts this way ensures your support benefits your children directly and avoids creating a taxable estate event.

In fact, gifting money to cover children’s educational and living expenses can be a smart financial move.

5. Consider Setting Up a Trust

For larger sums, it may be worth setting up a trust.

A trust allows you to gift money while retaining some control over how and when it is used.

Trusts can also help protect assets from inheritance tax and ensure the funds are used responsibly, particularly if your children are young or financially inexperienced.

With trusts, gifting money to children can be done in a way that secures their future while managing tax responsibilities.

6. Keep Clear Records and Seek Advice

Maintaining accurate records of all gifts is essential.

Not only does this help with tax planning, but it also provides clarity if questions arise after your passing.

Consulting with an independent financial adviser can ensure your gifts are structured efficiently and comply with current tax laws, avoiding costly mistakes.

For those gifting money to children, professional advice is highly recommended.

Conclusion

Gifting money to children can provide meaningful financial support, but it must be done carefully to avoid tax surprises.

By understanding inheritance tax rules, making use of annual exemptions, structuring gifts for educational expenses, considering trusts, and seeking professional advice, you can ensure your generosity benefits your family efficiently.

If you’d like guidance on structuring gifts to children or protecting your estate from unnecessary taxes, we can help.

Would you like to arrange an appointment to discuss your options? This is a great time to talk through all aspects of gifting money to children in a tax-smart way.