As the tax year draws to a close, it’s the perfect opportunity to bolster your family’s financial health and make the most of your allowances to maximise efficiency.
Give Your Child a Financial Head Start
The responsibility of saving for your child’s future is significant, yet it offers rewarding outcomes. Opening a child’s pension or a Junior ISA presents a solid foundation for their financial journey. Both accounts can be managed by a parent or guardian until the child turns 18. While the pension’s contributions are capped at the lesser of 100% of the child’s earnings or £3,600 and locked away until retirement, the Junior ISA offers access to funds at 18, supporting pivotal life moments like university fees or the purchase of a first home.
The Enduring Gift of Financial Planning
Gifting is not only a gesture of love and support but can also be a strategic tax planning tool. The 2023/2024 tax year allows for an annual tax-free gifting allowance of £3,000, known as the annual exemption. This can significantly reduce the taxable value of your estate. Unused portions of this allowance can be carried over for one year, enabling a potential combined gift of £12,000 for couples in a single tax year.
However, if you pass away within seven years of exceeding this gift allowance in any year, those gifts may be considered part of your estate for inheritance tax purposes, termed a potentially exempt transfer (PET).
Gifts with Exemptions from Inheritance Tax
Beyond the annual exemption, you’re allowed to make additional, tax-exempt gifts for special occasions like weddings or birthdays. These gifts must not impact your standard of living to qualify for this exemption. Charitable donations and contributions to certain institutions, such as museums or art galleries, are also free from gift tax and can help reduce your income tax liability, particularly beneficial for higher or additional rate taxpayers.
Remember, while gifts from parents might not incur inheritance tax, they could have other tax implications, such as capital gains tax on any income or gains from the gifted assets. Distributing your assets over time can mitigate capital gains tax, keeping gains within the annual allowance.
In Summary
With the tax year end approaching, there’s ample opportunity to utilise your tax and pension allowances effectively. Contact us for expert advice on securing a prosperous financial future for you and your family.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by the Openwork Partnership 13th March 2024
