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Every family situation is unique and, for some parents, discussing their financial plan with their children can be uncomfortable. Likewise, children may not always want to be forthcoming when discussing their own finances with their parents. However, a frank conversation could be worthwhile especially if you are planning to make gifts to them as part of your ongoing financial plan.

Inheritances are happening later and later in life as we all live longer and gifting is a subject that often comes up with many of our clients. As such, it is becoming harder for parents to make sure that the right people get the right amount of money at the right time.

More often than not, clients plan to provide lump sum gifts to their children (or grandchildren) with a specific purpose in mind whether that’s to help them on to the property ladder or provide for school or university fees among others.

For many clients, it is important that when gifting they feel comfortable that the money is going towards a good cause which is why they look to make larger, more specific gifts. However, by sitting down with your children to get a better idea of their own financial position could open up opportunities and have a greater impact on their day to day standard of living.

For a younger person just starting out in the workplace every penny counts. At a time of stagnant wages, rising inflation, house prices and childcare costs, individuals and families are increasingly under financial stress. This pressure can build and lead to working longer hours, sticking with an unenjoyed job and having less time doing the things that are most valued in life. However, Sometimes even a little financial help from a relative on a regular basis can relieve this stress.

Every generation has a differing attitude towards money but generally parents want their children to be independent and make their own way in life. Giving too much too early is often a concern but by having open discussions to better understand your children’s position and financial habits you can gain more confidence that the money you gift is having a positive impact.

Moreover, regular gifting can also enhance the value of your gifts. Depending on your and your children’s circumstances, regular gifts could potentially enable the following;

  • Promote regular saving through a cash only Help to Buy ISA where regular monthly contributions of £200 receive a 25% government bonus when used to purchase a first property.
  • If there is no immediate need for funds, paying into a Lifetime ISA for children can receive receive a 25% government bonus worth up to a maximum of £1,000 a year where annual contributions of up to £4,000 when used to purchase your first home or use towards retirement; although beware, there is a potential charge of 25% if drawn before age 60 and not used for a house purchase. The Lifetime ISA can be held as cash or invested giving them first-hand experience of the behaviour of investments, although this could mean that investments go down as well as up.
  • Provide breathing space in your children’s monthly budget allowing them to potentially maximise matched employer pension contributions.
  • Utilising the current annual gift exemption of £3,000 per individual over a number of years could reduce the potential for inheritance tax payable on a similar lump sum gift.
  •  Regular gifts out of surplus income are immediately free from inheritance tax again reducing the potential for inheritance tax when compared to larger lump sum gifts.

 

As you can see, not only can regular gifts have a tangible financial benefit, such as the government bonuses, they also start the valuable process of educating your children and instilling good financial practices.

As I said, every family situation is unique and if you are considering gifts, Equilibrium Asset Management’s advisers have the experience to help clients find the way that best fits your and your children’s circumstances.

Making sure that the right people get the right amount of money at the right time is certainly not easy. Then again, truly worthwhile things rarely are.

The information provided through the Equilibrium Asset Management website is based on our opinion and is for general information purposes only. It should not be construed as financial advice. The information provided regarding taxes and allowances are based on our understanding of current rules and regulations, which may change. The impact of any tax changes will depend on individual circumstances.