Cash Xmas gift could be taxing affair

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According to the firm, money put aside is taxed as if it were part of the givers own income, while the child remains unmarried or under the age of 18, unless the income is under £100 per year.

Money from grandparents and relatives is not treated in the same way though, which can be used during the child’s minority and set aside against the child’s personal allowances.

Paul Knox, director in Ernst & Young’s private client services practice, said: ‘It is worth remembering though that any substantial gift to another individual can have inheritance tax consequences if the donor dies within seven years.

But he said there are two exemptions, One, you can give up to £3,000 per year without any inheritance consequences. Secondly an individual can gift up to £250 per annum per person but if that limit is exceeded, then the whole amount could potentially be subject to inheritance tax at 40%.

‘The good news is that gifts between UK resident spouses can usually be made without any tax consequences at all, which is perfect if you are looking for a grand gesture but want to avoid giving the tax man a present,’ Knox said.

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