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Be Vigilant Against Tax Traps: Stay Ahead with Gifting Regulations and Inheritance Tax Planning

Avoid These Tax Traps – Getting a Head Start on Gifting Rules and Inheritance Tax

Gifting large sums of money has become increasingly common, with many people wanting to help their family members financially. Whether it’s to assist with buying a first home or to alleviate the rising costs of living, passing on wealth can be life-changing. However, the process can be complicated, and it’s important to ensure that you’re giving a head start, not a headache. In this article, we’ll discuss seven ways to effectively give gifts while avoiding tax traps and inheritance tax.

Related Facts

  • One-third of people have, or are planning to, give a gift of £5,000 or more to their family.
  • Almost half of parents with children have gifted, or plan to gift, more than £5,000.
  • Gifts of £5,000 or more are more likely to come from those on higher incomes (66%).
  • These figures are from a survey of 2,000 people conducted by Opinium for Hargreaves Lansdown in May 2023.

Seven Ways to Give Effectively

1. Use a Junior ISA

Grandparents who want to give money away sooner can take advantage of the Junior ISA. By adding up to £9,000 into a Junior ISA for a child, you can save or invest it tax-efficiently. The money cannot be accessed until the child reaches 18, making it a secure option. Additionally, there is no account charge for Junior ISAs, although investments may have their own charges.

2. Consider a Lifetime ISA

For children who have turned 18, a Lifetime ISA can be a great option. You can contribute up to £4,000 annually, which is within their overall £20,000 annual ISA allowance. This contribution will be boosted by a 25% government bonus of £1,000 for every £4,000. The funds can then be used towards purchasing their first property or saved for later in life. If the funds are used for other purposes, a 25% government withdrawal penalty may apply, resulting in a lower return than the original contribution.

3. Don’t Overlook Pensions

If you have a long-term perspective, consider a Junior SIPP (Self-Invested Personal Pension) for children. Despite the fact that children are unlikely to be full taxpayers at this stage, they still have the same allowances as adults. By starting early, you can take advantage of tax relief and secure a better financial future for your children. It’s important to note that a pension cannot be accessed until age 55 (rising to 57 in 2028).

4. Only Give What You Can Afford

While gifting can be a useful way to reduce your inheritance tax (IHT) bill, it’s crucial to ensure that you’re not giving away money that you might need in the future. It’s important to strike a balance between gift-giving and maintaining financial security for yourself and your family.

5. Consider Insurance for Potentially Exempt Transfers

If you plan on giving larger gifts and do not live for at least another seven years, these gifts may fall back into your estate for IHT purposes. To mitigate this risk, it’s worth considering a life insurance policy that covers your potential tax liability, including these gifts. By writing the policy in trust, it falls outside of your estate, and there will be no IHT to pay on it.

6. Don’t Try to Beat the System

Attempting to give away your home before you die while still benefitting from it in any way is not a recommended strategy. In most cases, it will not be considered as having been given, and it may lead to complications and legal issues.

7. Seek Financial Advice

With the complexities surrounding gifting and inheritance tax, it’s essential to seek professional financial advice. Each individual’s circumstances are unique, and a financial advisor can provide tailored guidance based on your specific situation.

Key Takeaway

Gifting can be a generous and beneficial way to assist your family financially. By utilizing options such as Junior ISAs, Lifetime ISAs, and Junior SIPPs, you can give effectively while minimizing tax obligations. It’s important to consider the long-term implications and seek professional advice to ensure that your gifting strategy aligns with your overall financial goals.


Gifting rules and inheritance tax can be complex, but with careful planning and consideration, you can navigate these challenges effectively. By utilizing the strategies outlined in this article, you can give your loved ones a head start without burdening them with tax liabilities. Remember, always seek financial advice to ensure that your gifting strategy aligns with your unique circumstances and goals.

Denk Liu
Denk Liu
Denk Liu is an honest person who always tells it like it is. He's also very objective, seeing the situation for what it is and not getting wrapped up in emotion. He's a regular guy - witty and smart but not pretentious. He loves playing video games and watching action movies in his free time.

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