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Gifting money to children explained

Gifting money to your children can give them a financial head start, and help them learn how to manage money. However, there are tax implications and rules you need to be aware of before you give your children large amounts of money. On this page, you’ll learn what these rules are, what the tax implications are on large gifts and things you may want to consider before you give your children money.

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The rundown
  • Gifting money to children isn’t always subject to tax, as you have an annual gift allowance of £3,000
  • If you don’t use your annual gift allowance, you can roll it over into the following year once, giving you a total allowance of £6,000 to gift your children in one year
  • Tax on large gifts can apply if you pass away within seven years of gifting money

What are the rules on gifting money to children?

You can gift money to your children in lump sums because every UK citizen has an annual tax-free gift allowance of £3,000. This enables you to give money to your children without worrying about inheritance tax. It’s important to note that this is your total personal allowance, which means you can’t give away £3,000 to each child you have. You may need to split this amount between your children to effectively use your allowance. Note that this is a per person allowance, so both parents may gift £3,000 each per year.

If you don’t use your total annual gift allowance, you can carry it over to the following year, although you can only do this once. If you don’t use your allowance in the second year, the tax-free allowance resets to £3,000 at the end of that time. This roll-over does mean that you are able to give your children up to £6,000 in one year

You’re allowed to gift smaller sums of money, up to £250 a year, to as many people as you want. However, you can’t combine this with your annual tax-free gift allowance. This means you can’t gift your child £3,000 plus an additional £250, as you will be taxed on anything over £3,000.

If you’re considering giving money to older children, you may ask yourself the question, “if I gift money to my children, might it affect the income tax they have to pay and push them up into a higher tax band?” Not to worry, HMRC doesn’t count gifts as income, which means your children are not liable to income tax on financial gifts you give them.

Can I gift money to children under 18?

Yes, you can gift money to children under the age of 18, although it’s important to be aware of certain rules.

There’s a limit of £100 on the amount of interest a child can earn on the money you gift them if they are under 18. This limit is designed to prevent parents from using their child’s tax-free allowance to avoid income tax on their personal income when they file a tax return

Children under the age of 18 can earn up to £100 in interest on any amount you give them without having to pay tax. Anything your child receives above that will be subject to tax. However, this limit doesn’t apply to money given by grandparents, relatives or friends.

Are there any tax implications for larger gifts?

You may have to pay tax if you give your child a monetary gift over £3,000

If you were to pass away within seven years of gifting money to your children, there will be up to a 40% inheritance tax liability if your estate is worth over £325,000. If you live seven years or more after giving a gift, there will be no tax to pay. This rule applies to any gift you give anyone.

What should I consider if I want to gift money to my children?

If you’re still working, you can give your children small, regular sums from your income without incurring tax. If you do this, it’s important that the payments come directly from your income, rather than your savings, and the rules state that these regular payments must not have an impact on your standard of living

You may also want to consider saving a small amount each month so that you earn interest, and then gifting your children a lump sum at the end of each year. This money could then be put into a lump sum savings account to earn more interest until the day your child wants to access their savings pot.

Start saving for a gift for your children

If you want to quickly and easily open a savings account and start saving for a gift for your children, register for a Raisin UK Account and apply today. Opening an account with Raisin UK is free and offers competitive interest rates from a range of UK banks.

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