As parents, we're acutely aware of the financial challenges our children may face, both presently and in the future, including soaring university tuition fees, the burden of student loan repayments, and the daunting prospect of managing high rents or mortgage payments. And let's not forget the significant financial responsibilities that come with raising a family or securing a comfortable retirement.

Given these considerations, it's no surprise that many of us are increasingly inclined to provide our children and young adults with financial assistance. In this article, we'll explore the essential factors to keep in mind when offering financial support and the available options.

Are You Secure in Your Own Finances?

Many individuals hesitate to part with their money out of genuine concern that they might deplete their own resources. It's a legitimate worry since none of us can predict precisely how long we'll live or what the future holds. However, the reassuring news is that you can use cash flow modeling to provide you with a reasonably accurate glimpse into your future financial outlook.

What About Tax Implications of gifting money in my lifetime?

In the United Kingdom, there is generally no tax obligation for either the donor or the recipient if the donor lives for at least seven years after making a financial gift. However, if the donor does not survive for seven years, inheritance tax may come into play. Nevertheless, there are specific types of gifts that are exempt from immediate inheritance tax.

**The annual gift allowance**

Also known as the 'annual exemption,' stands at £3,000 per year. It can be divided among multiple recipients and carried over for one year. If unused in the previous year, you'll have a £6,000 allowance.

**Unlimited small gifting**

You are permitted to offer unlimited small gifts of £250 per person, regular gifts from your surplus income, wedding gifts up to a certain limit, and several other exemptions.

What Investment Choices Exist for your Children's Future?

If your intention is to save or invest for a child's future rather than gifting money immediately, you have several options:

Pensions

You can contribute up to £2,880 into a pension on behalf of a child every tax year. The child won't access the funds until they reach at least 57 years old. However, due to the extended investment horizon, the invested sums can potentially experience substantial growth through compounding.

Junior ISAs

You can save or invest up to £9,000 each tax year on behalf of your children. The funds belong to the child and are locked away until the turn 18. A parent or guardian needs to open the account but anyone or any family member can contribute.

Trusts

Those wanting to save bigger sums, or hold money beyond the child’s 18th birthday, can choose to set up a trust. These can also give more control over the funds than other accounts. There are many types of trusts designed for different purposes and with different tax rules. A financial planner can help you.

For those seeking to save larger sums or hold money beyond the child's 18th birthday, setting up a trust is an option. Trusts also provide greater control over funds. There are numerous trust types designed for various purposes, each subject to different tax regulations. Get in touch to see how we can help.