November 17th, 2023

3 ways that wealth planning can help your clients give tax-efficient financial gifts this Christmas

As the Christmas period is almost upon us, your clients may be considering how to offer impactful, useful gifts to those they love. And while a perfectly wrapped gift is a lovely present to receive on Christmas Day, their loved ones may hope to receive a financial offering instead.

Indeed, amid the ongoing cost of living crisis, your clients could be thinking of their families’ wellbeing more than ever this year, and be looking to help out.

Yet if your clients make sizeable financial transfers to their family members in the holiday season, they should be aware of how these gifts fit into their overall financial plan, as well as the potential tax implications.

So, here are three ways that financial planning can help your clients give tax-efficient gifts this Christmas (and all year round).

1. A financial planner will help your clients understand their tax-efficient gifting options

If your clients plan to give financial gifts that enter the thousands this year, they should be aware of their annual exemption, and how it could play into their beneficiaries’ tax situation later.

The annual exemption

The annual exemption is the amount you can give away tax-efficiently each year, and as of the 2023/24 tax year, it stands at £3,000. This sum can be split among as many people as your client wishes.

Crucially, if your client gives more than £3,000 away in one tax year (or £6,000 between them and their spouse or partner), and they pass away fewer than seven years afterwards, the amount in excess of the annual exemption could still make up part of their beneficiaries’ Inheritance Tax (IHT) bill.

In simple terms, financial gifts above £3,000 are not necessarily tax-efficient.

The small gift allowance

Additionally, there is the £250 small gift allowance. Gifts of £250 or less can be given to as many people as your client likes each year, as long as they have not used another allowance on the same recipient.

Birthday and Christmas gifts within the small gift allowance are exempt from IHT altogether.

With so many complex rules to comprehend, discussing their gifting plans with a financial planner can help your clients understand:

  • How large financial gifts can contribute to a later IHT bill in some cases
  • The benefits of keeping gifts within the annual exemption
  • Ways to combine annual exemptions for couples.

This guidance may help your clients feel confident about helping their loved ones financially this Christmas.

2. Financial planning can help to calculate whether your clients can afford to make sizeable gifts

In around 400 BC, ancient Chinese philosopher Lao Tzu wrote the Tao Te Ching, a book that ruminated on the nature of a happy existence. One core statement made in the work, according to translator Stephen Mitchell, is: “If you realise you have enough, you are truly rich.”

Almost 2,500 years later, we’re all still wondering about the same thing. If your clients want to give funds away to the next generation, they may have doubts about whether they’ll still have “enough” to be content for the rest of their lives.

So, once your clients have established how much they want to give this Christmas, and to who, a sensible next step could be to identify whether they can afford these gifts and still have enough for themselves.

Working with an expert can help your clients to accurately project their future financial circumstances through the use of cashflow modelling software. This technology will allow your clients to:

  • Look at a wide range of financial variables in one “big picture”, including their income, pensions, cash savings, business assets, properties, and any other wealth they possess
  • Project whether they may have enough to achieve their gifting goals while still having a comfortable retirement
  • Add in external factors like inflation, interest rates, stock market fluctuations, and changes in income, to see how these might affect their future plans
  • Discuss these findings with an experienced financial planner who can break down any jargon and answer questions.

Talking to an expert who can offer the use of cashflow modelling software could help your clients put their gifting ideas into action.

3. We can offer your clients peace of mind this Christmas

Ultimately, one of the biggest barriers for individuals looking to give money to family members, or make any other significant financial move, is the concern that something might go wrong.

According to research from Nuffield Health, 59% of adults have had their mental health affected by the cost of living crisis. Financial concerns, no matter how much wealth your clients have, can be a huge factor in their overall stress and anxiety levels.

Moreover, whether they’re planning to give financial gifts this Christmas or simply need advice about their broader financial circumstances, financial planning can help reduce your clients’ stress.

A trusted financial planner can assuage their concerns while listening carefully to what your clients have to say. Then, they may begin to help your clients build towards a healthier financial future, no matter their circumstances, and form a lasting relationship that may improve their overall wellbeing in the long term.

If your clients are planning to transfer wealth to loved ones this Christmas, advice could help bring them peace of mind when they do so. Email or call 01905 619 100 to get started.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning, estate planning, tax planning or will writing.

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