3 benefits of giving financial gifts during your lifetime
After many years working hard to grow your wealth, it is natural to want to use your assets to help your family.
Traditionally, many people would leave a financial gift or inheritance for their loved ones in their will. But now, giving financial gifts during your lifetime is becoming more popular thanks to the emotional and financial benefits it offers.
Read on to learn about three benefits of giving a living legacy, and some important considerations before you do so.
A living legacy is becoming a more popular way to gift money to loved ones. Gifting money during your lifetime is becoming a more common way to pass on wealth. This is partly because it allows you to help loved ones achieve their goals, such as buying their first home.
The Guardian reports that, in 2022/23, 37% of first-time buyers relied on a financial gift to be able to put a deposit on their first home, a 40% increase from the previous year. The impact of these financial gifts can be significant, increasing the value of the home someone can afford by up to £10,000 for every £1,000 received, the Institute for Fiscal Studies reports.
So, using your wealth to support your loved ones during your lifetime could make a real difference as they take their first step onto the property ladder.
3 benefits of gifting financial gifts to loved ones during your lifetime
1. You can see the good that your financial gifts do for the recipient
Though leaving an inheritance to someone in your will can offer a substantial help to them in achieving their financial goals, the downside is that you will not be around to see how the gift benefits them.
By gifting to your children, grandchildren, or friends during your lifetime, you can enjoy seeing them achieve their goals, and celebrate with them. Maybe this will mean attending your child or grandchild’s housewarming party or seeing the photos from the trip of a lifetime that they were able to take.
Building wealth is, after all, a tool to help you enjoy your life and make precious memories with your loved ones. So, if helping your family and friends is something you would like to use your wealth for, gifting might be a great way to do this.
2. You can help your loved ones when they need it most
Life expectancy is increasing, which means that your beneficiaries may need to wait for some time to receive the inheritance you have left for them in your will. Research conducted by the Institute for Fiscal Studies has found that, on average, people born in the 1980s will be 64 when they inherit wealth.
Using financial gifting, you can provide financial support for your children or grandchildren at a point when it will most benefit them. This might be when they want to go to university, take their first step onto the housing ladder, or perhaps start a family – all of which tend to take place at an earlier stage of life.
3. Reduce the value of your estate for Inheritance Tax purposes
Of course, as well as the emotional benefits of being able to help your family to achieve their goals, gifting has some financial benefits too, namely, the opportunity to mitigate a potential Inheritance Tax (IHT) bill on your estate.
You have several gifting allowances that you can use each tax year. Any gifts that fall within these allowances are immediately considered outside of your estate for IHT purposes.
• The annual exemption allows you to gift £3,000 a year free from IHT. You can also “carry forward” any unused exemption from the previous tax year.
• You can gift your child £5,000 for a wedding or civil ceremony. This falls to £2,500 for a grandchild or great-grandchild, and £1,000 for anyone else.
• You can give as many gifts as you like up to the value of £250 each, except to anyone who has benefited from your annual exemption in the same tax year.
• You can make unlimited regular gifts using surplus income, as long as the gifts do not affect your ability to cover your expenses or affect your standard of living.
These gifts cannot be taken from savings or investments, they must be funded by surplus income from your employed job, business, or pension income.
Financial gifts that exceed these allowances may still be free from IHT if you live for seven years after giving them. These are known as “potentially exempt transfers”.
It is sensible to keep clear notes of the gifts you have given to demonstrate when you have made use of these allowances.
It is vital to consult your financial planner before gifting financial gifts
As you can see, there are several excellent benefits to gifting wealth during your lifetime, but it is important to consider your decision carefully before you proceed. Giving more than you can afford could hinder your ability to achieve your own financial goals, or worse, increase your risk of running out of money during your retirement.
That is why we strongly recommend consulting your financial planner before giving a financial gift. They can help you to identify how much you are able to give without it affecting your own financial wellbeing.
Get in touch with RPG Crouch Chapman Financial Services Limited
Our team of financial planners can help you to use your wealth to support you and your family throughout your life.
To arrange an initial meeting with no obligation, please contact us at hello@rpgcc.co.uk or call 020 7870 9050 to speak to us. Or you can visit our web chat in the bottom right corner; we respond personally during office hours, and you can leave a message out of hours. The RPGCC team is always just a click or call away.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer. The Financial Conduct Authority does not regulate estate planning or tax planning.
