Giving the gift of money this Christmas

James Stewart-Lockhart

James Stewart-Lockhart

Financial Planner

28 November 2023

As we approach the holiday period, some may be considering making gifts to family members - whether that be grandparents giving money to their grandchildren, or parents helping out their children during this season of giving.

This could bring on concerns over the inheritance tax (IHT) implications of these gifts. You can read more about the myth of the £3000 gift limit in another of our blogs.

Following the recent Autumn Statement, the Nil Rate Band remains at £325,000, which is unchanged since 2009. With significant increases in property values over the last 14 years and global stock markets near all-time highs, more and more people are getting caught out by IHT. Many of those affected are of a generation where they may have guaranteed deferred benefit/final salary pensions, which in some cases might provide more income than they need, thus every £100 of surplus income building up in their estate, could add £40 to the IHT burden they leave.

This brings me on to one of the most underused IHT exemptions, ‘gifts out of income’.  Providing a donor satisfies three conditions, all gifts out of income will be treated as immediately exempt from IHT. That’s right, no seven-year clock! 

The qualifying conditions are:

  1. The gift must be made as part of normal expenditure of the donor.
  2. The donor must retain sufficient income and maintain their standard of living.
  3. Gifts must be made out of income and not capital.

If we take someone who is 67 years old, with the life expectancy of 87 and surplus income of £1,000 per month, they could potentially gift £240,000 over a 20-year period, thus saving £96,000 of IHT. Whilst the savings may be more modest for others, this is a very useful exemption to be used in your financial planning.

For those with surplus capital rather than surplus income, there are numerous other IHT mitigation options available including outright gifting, loan trusts, gift trusts, discounted gift trusts, AIM portfolios etc.

This is a very complex area so if you would like to discuss how you can potentially gift money at Christmas, without incurring IHT, please don’t hesitate to get in touch with myself, a member of our Wealth team, or your usual Johnston Carmichael adviser.


Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm. 

All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices.  Legislation and the levels and basis of reliefs from taxation are subject to change and are dependent on your individual circumstances.

The financial conduct authority does not regulate tax and estate planning.

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