Giving financial help to those you care about

  • 21 May 2020
  • 10 mins
  • It’s understandable that you may want to help your loved ones at this difficult time.

  • But you should bear in mind any inheritance tax that could be due on financial gifts.

  • However, there are ways to help financially and tax-efficiently

During tough times like the ones we’re facing right now, if you have loved ones who are going through financial difficulties, it is only natural that you would want to help them if you are in a more fortunate position

Currently, the older generations, those in their 60s and beyond, have benefitted over their lifetimes from exceptional rises in property values [1], long periods of positive investment returns [2] and generous defined benefit pensions [3]. This means that, in general, those in their 20s and 30s are the first generation in over 130 years to be less well off than their parents [4].

There are many additional financial burdens on the younger generation. University fees were introduced in 1998 and have steadily risen, so most students now leave Uni with debt of around £36,000 [5]. Buying a property almost anywhere in the UK is much more expensive than it was and generally requires a hefty deposit of around 20% [6].

If you also factor in the jobs that may be lost, incomes lowered, and businesses ruined by the coronavirus pandemic, there are many reasons why older parents, uncles, aunts, even grand-parents may want to use some of their wealth to aid their younger and less fortunate nearest and dearest.

If you can comfortably afford to help out – and this won’t leave you at all unprepared for the financial commitments that may lie ahead – you need to be aware of the potential tax implications for you and the person you’re giving money to.

Read more: Intergenerational wealth transfer: it’s all the rage

Read more: Inheritance tax: a complex labyrinth

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Below is an overview of what’s involved, but you might want to read some of our other articles to gain a better understanding of what’s involved and how to pass money on tax efficiently.

It’s important to know that the amount of inheritance tax being collected by the government has been rising steadily [7] and even modest gifts from those who consider themselves only moderately well off may attract this tax.

Gifting – in a nutshell

If you give someone a monetary, or valuable gift, and you outlive having made that gift by seven years, then there won’t be any inheritance tax due on the gift you have made. If you pass away between one and three years after making a gift like this, then inheritance tax of 40% is due on the gift you made. Between three and seven years, and if the total of the gifts are above the nil rate band, the inheritance tax due tapers. However, the rules are complex and it is best to seek professional advice [7].

So, for example, if Auntie Lucy gifts her nephew £20,000, then she dies two years later, her nephew will have to pay inheritance tax of £8,000.

But as with most things tax-related, there are exceptions…

Tax-exempt gifts

  • You can give someone (a family member or anyone else) up to £3,000 per year without any tax liability.

  • If you don’t use your £3,000 gifting allowance, it can be carried over to the following year, so it can go up to £6,000 – but only for one year.

  • Using both their allowances over two years, means a married couple could make a cash gift of £12,000 to someone without incurring any tax liabilities.

  • You can give up to £250 to any number of people, but you can’t combine this with the £3,000 annual tax-exemption.

Weddings are special

  • There are special tax exemptions around weddings and civil partnerships, as each parent can give their child £5,000 as a wedding gift, without any tax liability.

  • Grand- and great-grand parents can each give the couple £2,500 without any tax implications.

  • Other relatives and friends can gift up to £1,000, tax-free.

Regular gifts are allowed

One way to help someone out financially without incurring a tax liability is to give them a regular payment from your ‘surplus’ income.

Regular payments – for example, ones that are made monthly, twice a year, or on birthdays – that can be shown to have been taken from your income, not your capital, can count as tax-exempt gifts and you do not have to outlive them for seven years.

So, if you can save money from your income, you can gift this regularly to your children, or others you wish to help, and it won’t be liable for inheritance tax.

For example, if your daughter loses her job and you’re able to make a monthly contribution from your income towards her mortgage, that’s tax-exempt. Or if twice a year, you help your Mum out with heating and other bills, with money saved from your income, that’s also tax-exempt.

Gifting means gifting

It’s very important to understand that once you make a gift, you have to give up control of it and no longer get any benefit from it. So, for example, if you gift your sons your holiday home, then you must pay rent for the periods when you stay there. And if they want to knock it down and build something else, you no longer have a say.

Keeping a thorough record of all the gifts you make over the years will ensure that all the information is to hand and should avoid any confusion over potential liabilities in the future.

Please be aware that inheritance tax is a complex topic and it may be best to seek qualified advice to make sure that you are making as much use of tax-efficient strategies as possible.

And don’t forget the organisations close to your heart

The coronavirus pandemic is taking a heavy toll on the third sector. According to the Commons Digital, Culture, Media and Sport Committee, charities could be losing up to a staggering £4bn in income [8]. The lockdown has forced the cancellation or postponement of crucial fundraising events – including the London Marathon – and the closure of thousands of charity shops.

And whilst the government has launched a £750mn grant package, just over half of this will be given to small local charities focussing on those delivering food and essential medicines and providing financial advice, hospices, St John's Ambulance and services for vulnerable children and domestic abuse victims. [9]

The Charity Aid Foundation reports that is has received requests for over £20 million of support but has had to pause its grant-giving activities as it has become overwhelmed and has exhausted its reserves [10].

Charities form a well-developed social support system at the heart of our civil society and with a major recession almost inevitable [11], charities are highly likely to remain suffering long after the immediate crisis has subsided. [12]

How you could help

Donations by individuals to charities or to community amateur sports clubs (CASCs) are tax free with the tax going to the charity. You can support your favourite causes [13].

If you want to make a lump-sum gift and are a tax payer, completing a Gift Aid form allows charities and CASCs to claim an extra 25 pence for every pound you donate. And if you are a higher-rate tax payer you can claim an additional 20% back in tax relief through your annual tax return.

If you want to make regular payments, you can donate to charities – but not CASCs – from your wages or pension through Payroll Giving. Donations are deducted from your salary before tax is calculated. To donate £1, you pay:

  • 80p if you’re a basic rate taxpayer

  • 60p if you’re a higher rate taxpayer

  • 55p if you’re an additional rate taxpayer

The tax relief you get is different if you live in Scotland. To donate £1, you pay:

  • 81p if you’re a starter rate taxpayer

  • 80p if you’re a basic rate taxpayer

  • 79p if you’re an intermediate rate taxpayer

  • 59p if you’re a higher rate taxpayer

  • 54p if you’re a top rate taxpayer

You can also donate land, property or shares. The rules around doing this are more complicated and specialist advice should be sought before going ahead.


These are difficult times for many. Those of us who are more fortunate hate to see those we love struggling. And many of the organisations we support are at the front line when it comes to caring for those most in need.

It is only natural that we would want to reach out and offer support.

Talking to a financial adviser could help you develop a gifting strategy that allows you to help those you care about in a meaningful way without triggering taxable events and within a broader estate planning exercise.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Fees and charges apply at Schroders Personal Wealth.

In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.















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