Gifting money to your children may seem like a great way to help them financially, but while there is no limit to how much you can give there are tax implication to consider.

Give them the cash at the wrong time or in the wrong way and they could end up being chased by the tax man at a later date.

Here is what you need to consider before writing a cheque to your children.

Inheritance tax


Inheritance tax sees the government take a slice of your estate before it is passed on to your loved ones; it is also applied to any monetary gifts you give in the 7 years preceding your death.

The main concern for many parents gifting money is that their children will face an inheritance tax bill should they pass away.

Your estate (the property, possessions and savings you leave behind) is valued when you pass away.

The first 325,000 of anything you own escapes inheritance tax (it is referred to as the nil rate band), however any amount over this is taxed at 40%.

For example, say your estate is valued at 425,000, the first 325,000 of this would escape inheritance tax. However, 100,000 of its value would be taxed at 40% so the tax man would claim 40,000 before the balance is passed to your next of kin.

The exception to this is if you are married as you can pass your full estate to your spouse in the event of your death without paying any inheritance tax.

By doing this you also pass on your 325,000 inheritance tax exemption, so 650,000 of your combined estate would remain free from inheritance tax on their passing.

Exemptions and allowances

Aside from the Inheritance Tax exemption threshold, there are a series of additional exemptions and allowances that enable you to gift money without the threat of Inheritance Tax.

Here are the most relevant if you are considering giving money to your child.

Income tax

Tax break

Gifts are not eligible for income tax as they are not classed as source of income by HMRC and therefore you do not need to worry about income tax when gifting money to your son or daughter.

You may be concerned that by gifting money to your children they will be pushed into a higher income tax band, or be liable to pay income tax on the gift itself.

However, this is a common misconception and as long as your child is over 18 is not the case.

Loss of benefits

Something else to think about before you gift money to your children is the impact it might have on their rights to claim benefits.

Although gifts are not classed as a source of income, and therefore cannot put your child's earnings over the benefit thresholds, some benefits are dependent on the amount of savings you have in the bank.

For example, if your child is currently receiving income support and your gift would see their savings increase to over 16,000, they could lose their benefits as a result.

To avoid your son or daughter losing any income from benefits it makes sense to sit down and check if a gift you wish to give would cause any issues.