Wednesday 13 November marked World Kindness Day, which aims to celebrate the positive effect that kindness can have on individuals, communities, and the world at large.
So, it’s a perfect time to consider using some of your wealth to help others, for example, by donating to charity or supporting your loved ones.
Such generosity may not only benefit your chosen recipients, but it could also give your finances and emotional wellbeing a boost.
Read on to discover three lovely benefits of sharing your wealth this World Kindness Day and beyond.
1. Help your loved ones when they need it the most
You might have plans to leave your loved ones an inheritance when you pass away. Indeed, creating a will and updating it periodically is a sensible way to protect your wealth and provide for those closest to you after you’re gone.
Yet, with people living longer on average than they have done in previous generations, your beneficiaries could be at retirement age by the time they inherit.
On the other hand, passing on some of your assets during your lifetime could allow you to support your friends and family when they need it the most.
For example, your children may require more financial help when they’re starting out in life – getting married, buying their first home, and so on. This may be especially true during the current economic climate.
According to BBC News, first-time buyers are facing the toughest conditions in 70 years, and they are increasingly reliant on parental support.
What’s more, figures published by the Office for National Statistics (ONS) reveal that between July and October 2023, around 1 in 4 adults reported struggling to afford rent or mortgage payments due to the cost of living crisis. Additionally, 1 in 4 adults said they would not be able to save money in the next 12 months.
So, “giving while living” could be much more meaningful for your loved ones than leaving them an inheritance they may not receive until they’re in their 60s or 70s. You’ll also have the joy of seeing them benefit from your wealth during your lifetime.
2. Reduce a potential Inheritance Tax bill for your heirs
In the Budget, which was announced on 30 October 2024, the chancellor extended the freeze on tax-free Inheritance Tax (IHT) nil-rate bands until 2030.
Your assets, including your property, could continue to increase in value over time. So, thresholds not rising with inflation could mean that your estate is liable for IHT when you die, or that your beneficiaries may face a higher IHT bill than you might have planned for.
Additionally, from April 2027, your pension assets will likely be considered part of your estate for IHT purposes. Currently, you can usually pass on your pension without the recipient incurring IHT.
Fortunately, you could reduce the size of your estate for IHT purposes by carefully navigating gifting rules, so that your loved ones receive more of your wealth.
Here are three helpful ways to gift money tax-efficiently.
Use your annual gifting exemption
In the 2024/25 tax year, you can give IHT-exempt gifts of up to £3,000 – or £6,000 as a couple – to one or more people.
If you have unused annual exemption from the previous tax year, you can carry this forward for one year.
In addition to your annual gifting exemption, in 2024/25, you can also make tax-free gifts for individuals you know who are getting married. This is up to:
- £5,000 to a child
- £2,000 to a grandchild
- £1,000 to anyone else.
You can also make as many gifts of up to £250 each as you like, provided that you haven’t made a gift to the same person using another exemption.
Give additional gifts as potentially exempt transfers
If you use up the gifting exemptions outlined above, you can give further gifts as “potentially exempt transfers” (PETs).
Any PET you make only becomes free from IHT if you survive for at least seven years after giving the gift. If you die before this, a sliding scale known as “taper relief” may be applied to determine the amount of IHT payable. In general, the sooner you die after making the gift, the higher the rate of IHT.
So, sharing some of your wealth earlier in life could allow your heirs to enjoy more of their inheritance.
Bear in mind that that taper relief only applies to gifts in excess of your nil-rate band. So, if your gifts don’t exceed your nil-rate band and you have sufficient threshold remaining, PETs will be the first part of your estate calculated against this.
Gift from surplus income
Under the “gifting from surplus income” rule, you could gift wealth directly from your income to whoever you’d like, without any IHT liability.
Theoretically, there is no limit to how much of your wealth you can share in this way, provided that your gifts meet three key criteria:
- You make regular payments, rather than a one-off gift
- The funds you give come from income, not capital assets
- You can maintain a reasonable standard of living while giving the gifts.
For example, you might choose to cover the cost of your grandchild’s school fees or pay for an elderly relative’s residential care.
The rules on gifting out of income can be complicated, so you may benefit from working with a financial planner who can help you understand your options.
3. Support a worthy cause
Alongside sharing your wealth with those closest to you might allow you to see the benefits and joy, gifting to charity may be equally rewarding.
What’s more, if you have a cause that’s close to your heart, your support may be more important than ever. Research published by the Charities Aid Foundation (CAF) has revealed that fewer people are regularly donating to charity than before the coronavirus pandemic.
So, gifting to your favourite charity could help it raise crucial funds for continuing its important work.
Additionally, if you’re a higher- or additional-rate taxpayer living in England, Wales, or Northern Ireland, you could claim tax relief on any donations you make through Gift Aid to reduce your Income Tax liability.
Alternatively, you might choose to leave a charitable legacy in your will. Not only could this provide invaluable support to a good cause, but it could also reduce the amount of IHT your beneficiaries pay when they inherit your estate. This is because donations to a registered charity usually fall outside of your estate for IHT purposes.
Furthermore, if you leave at least 10% of your net estate to charity, you may qualify for a reduced IHT rate of 36%, compared to the standard rate of 40% (2024/25). This could allow you to support a worthy cause, while also reducing the IHT bill your loved ones could face.
Get in touch
If you’d like help making the most of your wealth, both now and in the future, we can help.
Please email hello@bluewealth.co.uk or call us on 0117 332 0230.
Please note
The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.
Blue Wealth Ltd is not responsible for the accuracy of the information contained within linked sites.
Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
Approved by Best Practice IFA Group Limited on 20/11/2024
