The Gift of Gifting This Christmas

It’s (almost) Christmaaaaaas!

But before we say farewell to 2023, let’s briefly reflect on the Christmas tradition of gifting.

Most of us would admit that we prefer to give gifts to our loved ones rather than receive them.

The satisfaction and joy that comes with finding someone you love the perfect Christmas gift surely outstrips any joy to be had on the receiving side.

So why is it that many tend to make the most sizeable gifts of their lives when they’re no longer here to reap the benefit of them?!

I’m referencing here the debate that many individuals wrestle with in their minds:

Should we gift money to the children/grandchildren/cat while we’re still alive, or instead provide for them in our Will?

It’s at this time of year – when gifting is already at the forefront of minds – that I remind clients of the benefits of making financial gifts to your loved ones while you’re still healthy and happy to see the value and joy it brings.

Doing so can make financial sense on paper; making gifts in your lifetime rather than on your passing could save your loved ones an eye-watering Inheritance Tax bill… Happy Christmas indeed!

But it shouldn’t be about saving tax.

Surely the main benefit is the enjoyment in witnessing first hand the tangible satisfaction your gift will deliver, while you’re still alive.

Think … helping out your son and his partner to ascend the property ladder to accommodate a larger home for their new children.

Think … buying your grandchild their first car.

Think … helping your daughter with the financial burden of wedding costs.

Think … whatever you want to!

The bottom line is: too many individuals leave it until it’s too late.

You wouldn’t gift the latest iPad to your son in your Will.

You would rather see their face when they open it, wouldn’t you?

Why is it then not the same when it comes to gifting some of your financial resources?

The reservation most people have is can we really afford to make a gift and be financially okay ourselves?

And it’s a perfectly reasonable and rational concern to have.

I address this with clients in three simple steps.

1) Let’s work out how much financial resources you need to achieve everything you want to do in life

The number one priority should always be ensuring you have sufficient financial resources first of all to do everything you’ve ever wanted to do.

You’ve worked hard all your life to save and accumulate your wealth.

It’s now time to spend down that wealth on living your best life and the best versions of yourselves.

Once you’ve got a plan in place that measures how much is enough, only then can you quantify what is left to gift.

2) Now let’s stress test it

Life doesn’t occur in a straight line. Bumps in the road happen, and setbacks warrant changes to your financial plan.

For clients who are keen to gift money, I’ll sit down with them and throw a number of different scenarios into the mix to ensure that point 1 above is as watertight as it can be, save for us actually having a crystal ball!

What happens if there is a short-term market crash?

What happens if your partner passes away before you and they hold the majority of your household retirement income?

What if you ever had to pay for care?

If the picture is still looking good after we’ve modelled all these scenarios, then the question begs … what are you waiting for?

3) You either give it to your loved ones, or give it to HMRC.

Former Labour Chancellor Roy Jenkins famously described Inheritance Tax as ‘a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.’

Tongue-in-cheek as it may be, there is undisputed truth in this quote.

If you opt to not make a gift to your loved ones then you could potentially be exacerbating your estate’s liability to Inheritance Tax.

What this means in pounds and pence is that the taxman/woman will get their cut out of the resources that could have otherwise gone to the special people in your life.

Inheritance Tax is fiendishly complicated, but if you want a Headsup on how gifting interacts with Inheritance Tax, then listen to episode 26 of my podcast Headsup on Money.

You might be surprised just how many tax freebies you get from the government each tax year.

Click below to listen.

Ultimately it all comes down to you and what you’re comfortable with.

I can tell you that it makes financial sense to make the gift, but you’re the expert when it comes to your own life.

Hopefully this little post will give you some food for thought this festive period.

Have a lovely Christmas, and happy gifting.

Benjamin

Benjamin Mitchell

Benjamin Mitchell

I’m a chartered financial planner that can help you plan for tomorrow and also live for today.

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