The gift that keeps on giving: How Christmas gifting can protect your wealth

Whether you’re treating loved ones at Christmas, or celebrating someone’s birthday, did you know those gifts can also play a smart part in safeguarding your financial legacy?

Transferring shares, investments or cash to family and friends can reduce the exposure of your estate to inheritance tax (IHT) and capital gains tax (CGT). But you’ll need to be aware of applicable exemptions and potential tax traps to avoid unexpected liabilities.

Barry Griffin, a partner in our Wills, trusts and probate team, outlines how thoughtful gift-giving today can help preserve your estate for the future.

1. Long term financial stability

Giving gifts isn’t just thoughtful, it’s a practical way to reduce your estate’s tax burden. You have an annual IHT exemption of £3,000, which means you can gift up to that amount each tax year without it being added to your estate on death.

Importantly, it’s a lifetime exemption: you can give more, so long as you survive for seven years after the gift, and you’ll reduce the taxable value of your estate accordingly. Gifts to charities are fully exempt from IHT, so generosity really does pay!

This applies to all forms of wealth: cash, shares, property, heirlooms or other investments. By directing surplus assets, you can integrate them into your estate planning and enhance what you leave to loved ones.

2. Choose wisely when gifting shares and investments

For share and investment transfers, CGT is an important consideration. Your annual CGT exemption is currently £3,000 (since April 2024). Gains above that threshold could trigger a CGT charge, so planning is essential.

If your shares have lost value, transferring them now can be especially tax-efficient – you won’t pay CGT on a transfer of assets that have dropped, and if they recover later under the recipient’s ownership, any gains would no longer form part of your estate.

3. Gifts out of surplus income

Considering the change to inheritance tax treatment of pension from April 2027, now may be the time to review your pension arrangements with a financial adviser and consider drawing down on pensions, using the surplus income created to make full use of the gifts out of surplus income rules. There is no cap or 7-year claw back for such gifts and it is the perfect way to pass wealth to children and grandchildren.

4. Keep the conversation open

Estate planning can feel daunting, but it doesn’t have to be. Start with transparent discussions about your financial goals and expectations with your family and professional advisers.

We’re here to guide you, from reviewing how specific gifts impact your estate, to navigating exemptions and timing, to helping initiate discussions with loved ones.

By aligning your personal generosity with smart tax planning, you’re supporting your loved ones today and securing your legacy for tomorrow.

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.