As we approach the end of the year, and enter a new one, it is usual for families to assess their wealth and legacy planning – and most notably, is a very common time of year for cash gifting. Whatever the occasion, be it Christmas or Lunar New Year, families will be gathering in the coming weeks and months, and cash gifts can form a large part of those traditions. Now more than ever, it offers meaningful support for the next generation. With challenging financial headwinds for younger generations, a monetary gift to children or grandchildren can make a real difference, whether used immediately or invested for the future.
Beyond the practical Inheritance Tax (IHT) benefit of potentially reducing your estate, gifting during your lifetime allows funds to be used earlier. Smaller gifts may help loved ones cover day-to-day wants or needs, while larger gifts can support milestones, such as starting school, graduating from university or moving into a first home."
If you want to make smaller cash gifts to loved ones, the small gift exemption lets you give up to £250 (per person, per tax year) to as many individuals as you wish. These gifts do not form part of your estate for IHT purposes, provided that anyone receiving £250 does not also benefit from your separate £3,000 annual exemption.
If you alternatively want to consider larger contributions, perhaps to be invested for long-term growth and future needs, you can give away £3,000 each tax year under your annual exemption (or up to £6,000 if last year’s allowance was unused). Gifts above this are treated as Potentially Exempt Transfers (PETs), meaning they could fall into the estate for IHT purposes in the event of death within seven years.
For more detail on these gifting exemptions and wider planning considerations, please see our article: Gifting: a simple and effective strategy for passing on wealth.
Gifting to adult family members can be relatively straightforward if made directly to them. You can make an outright cash gift and they can decide how it is used or invested, depending on their needs and circumstances.
Gifting to minorchildren is more nuanced, and the tax treatment depends on how the money is held and who makes the gift. Parents and grandparents should consider how the funds will be used, when they would like the child to have access and the tax consequences.
Practically speaking, there are two most commonly used options for passing wealth to minors. These are Junior ISAs (JISA) and bare trusts.
For parents, it is vital to understand the parental settlement rules. If a parent gives money to a minor child outside a tax wrapper – for example via a bare trust, as minors cannot hold investments directly – and the investment income or gains from that gift are more than £100 a year (per parent, per child), it is taxed as the parent's income and gains. This can make bare trusts less attractive for parents where the funds are intended to be invested.
As a result, many parents may choose to use a JISA:
Once a parent or legal guardian has opened a JISA, grandparents (and other family members) can contribute towards the £9,000 annual limit.
Grandparents making larger outright gifts may also consider setting up a bare trust for a grandchild and can make an unlimited gift into it. Bare trusts set up by grandparents are not caught by the parental settlement rules. Therefore, the income, dividends and capital gains within the trust are taxed based on the child’s own tax position (utilising their own tax allowances), rather than that of the grandparent. Bare trusts can also offer additional flexibility as trustees can usually access the funds before the age of 18, provided this is for the child’s benefit, for example helping with school fees or extracurricular activities. The child will become fully entitled to access the funds from age 18.
By clarifying how much you want to give, how any income or gains will be taxed and, for children or grandchildren, when they may need to access the funds, you can structure cash gifts to help support loved ones in a meaningful and tax-efficient way.
This also creates an opportunity to open up age‑appropriate conversations about money, values and long‑term goals, so that your gifts become part of a wider family legacy rather than a one‑off transfer of wealth. By engaging with professional legal and financial advisers and regularly reviewing gifting strategies and wealth transfer, you can ensure your wealth is distributed according to your wishes.
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