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How much money can I give to my children each year before tax has to be paid on it?


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Is your question in relation to Inheritance Tax? If so are you considering Lump sum gifts or regular payments? Have you already made any gifts this tax year?

I was told, one can give £5000 each year to non-tax paying children. (Both in full time education)

I'm still not really clear whether your question relates to your own taxation or that of your children. In relation to Inheritance Tax you can give a total annual amount of £3,000 in each tax year without tax implications. Any amount exceeding this up to £312,000 in each seven year period is treated as a Potentially exempt transfer and no tax is payable unless you die within 7 years. Any amount above this will be taxed at 40% There are various other exemptions from Inheritance Tax. If you make regular gifts out of surplus income this is not taxable provided it does not substantially lower your standard of living and you should keep records of such gifts to satisfy the revenue. You can therefore give £315,000 to your children provided you have made no gifts above the annual exeption in the last 7 years and you will not have to pay tax on this initially only if you die within seven years. Income Tax on any money invested for your children will be payable unless within a tax free savings vehicle.

Are we talking about Inheritance Tax exemption in respect of Adult children or are we talking about Child Trust Fund contributions for young children (under 6)? If it is to an Adult child then it is £5000 each on marriage or an annual total of £3000 each to all beneficiaries or any number of gifts under £250 which are paid out of income. See: http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm If it is to a Child Trust Fund then the maximum is £1200 per year (birthday to birthday) per child for all sources (inc. grandparents, Friends, Aunts & Uncles). Any other payments made by parent to an under-18 child would be considered as the parent's investment for income tax purposes.

Just some quick clarifications the £250 small gifts are a capital exemption. You can give unlimited amounts out of surplus income. Details in link provided by MikeGG1. Income up to £100 per annum from money invested for your child will not need to be added to your income for tax purposes. I'm unsure of the Capital Gains tax implications and wonder if you can invest for capital growth and avoid a tax charge.

Also this link is useful http://www.investmentguide.co.uk/sg-tex11.htm

ckm4328 Capital Gains Tax arises at the point of sale and if that is after 18 it should be down to the child rather than the parent.