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Whether you’re looking to indulge your loved ones at Christmas, or show your appreciation for someone on their birthday, did you know that they can strengthen your financial security?

By transferring shares, cash gifts and investments to your family and friends, you can mitigate the impact of inheritance tax and capital gains tax (CGT) on your estate. However, without familiarising yourself with the exemptions and expenses that may apply, you may incur additional tax charges.

Barry Griffin, a partner in our Wills, trusts and probate team, explains how you can ensure the longevity of your estate through gift-giving.

1. Long term financial stability

As well as being a lovely gesture for your nearest and dearest, or to causes close to your heart, gifts are an excellent way to reduce the tax implications on your estate. Every year, you can make gifts of up to £3000 without it being added to the value of your estate.

It’s a common misconception that you can’t give more than £3000 – in fact, you can give as much as you like as long as you can afford it. Provided you live for seven years or more afterwards, you can exceed the annual allowance and will have reduced the amount of inheritance tax your estate is liable to pay. Gifts to charitable organisations are exempt from inheritance tax, so there are no disadvantages to giving generously!

Investments, property, heirlooms and cash transfers all fall into the category of gifts. By taking into account any surplus assets, you can incorporate them into your inheritance plan and secure a greater financial estate for your loved ones.

2. Make informed decisions

Critical financial decisions that affect you, your children and future generations should be done with prior knowledge of pitfalls and opportunities. For example, if you’re thinking of giving your stocks and shares to another, or selling them on to make a cash gift, CGT may be chargeable on the gains of those shares if they exceed £6,000 (your annual allowance).

The CGT allowance is going to be reduced again from 6th April 2024 to £3,000, making shrewd, prompt gifts of valuable shares even more vital. However, if your shares have fallen in value then you will not need to pay any CGT on them once they are transferred. Despite fluctuations, the value of shares often rise after short term dips – it may be prudent to make a gift of any such shares now, so that they may increase in value over time.

3. Communication is key

Whilst many of us wish to build up our wealth in order to pass it on to future generations, it can be difficult to implement an effective inheritance plan. The first step is to have honest, open conversations about finances with your loved ones and professional lawyers.

Having a lack of knowledge regarding the subject is very common, and an understandable reason for putting it off. However, we’re here to help you every step of the way, whether its providing advice regarding your specific financial situation, how certain gifts will impact your estate or how to broach these topics with your family members.

Talking about your finances and expressing your desires for the future puts your estate in a very strong position. Gifts can help you show your appreciation for loved ones whilst simultaneously safeguarding your wealth for the future.

For advice on all aspects of Wills, probate, tax planning and estate administration as well as gifting, please contact Barry Griffin at bg@debenhamsottaway.co.uk or 01727 738249.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.