December can often become a thankless hunt for the “perfect present”, a frantic search for something suitably thoughtful, suitably useful, suitably ‘them’. Yet some of the most meaningful gifts aren’t the ones found in a Christmas stocking.

For many families, the festive season is both a spontaneous moment of generosity and a time when parents or grandparents begin to think more seriously about longer-term financial gifts: helping your adult child buy a first home, supporting a grandchild through education, or simply giving now rather than later. It’s also a season when philanthropic instincts typically rise to the surface.

But as uplifting as financial generosity can feel, it comes with rules – and occasionally surprises. No one wants to discover in March that their December gift has created an unexpected tax headache. So, consider this guide to festive financial gifting, peppered with some real-life advice learnt along the way.

This article is for information only. As your tax liabilities will depend on your individual circumstances, you should refer to your tax adviser for guidance before taking any action.

The stocking fillers – small but meaningful gifts

Every family has its own festive traditions. One well-meaning relative gives each grandchild “£50 and a lesson on compound interest”, a combination that has made them unexpectedly popular with parents.

Happily, the tax rules on lower value gifts are equally friendly. You can make unlimited gifts of up to £250 per recipient, as long as you don’t combine those gifts with any other tax exemptions for the same person.

Then there’s the all-important annual exemption of up to £3,000 each year, with any unused amount able to be carried forward for one tax year.

Special occasions come with their own exemptions. For your child’s wedding or civil partnership, you can give them a £5,000 tax-free gift. For a grandchild? £2,500. Anyone else? £1,000. So, a festive wedding could mean mulled wine, fairy lights and tax efficiency.

A note on regular payments

Some gifts aren’t seasonal. If you support someone monthly – perhaps contributing towards a family member’s mortgage or rent – then the payments are exempt, as long as they are:

• made from your normal income, and
• affordable without affecting your standard of living.

These “gifts out of surplus income” can sit comfortably alongside other allowances, with the exception of the small-gift allowance.

This means that you can make regular payments alongside gifts from your £3,000 allowance, which could be ideal for families with children who require both ongoing support and generous Christmas gifts.

Big-ticket gifting – the seven-year rule

Major transfers of wealth, such as selling investments to hand over a substantial sum, transferring property, or making a large cash gift, can be the most emotionally rewarding. They can also be the most beset with pitfalls.

If your estate is above the inheritance tax (IHT) threshold of £325,000, large gifts may be subject to inheritance tax unless you survive seven years after making them. If you don’t, a taper relief may apply:

• Less than 3 years: 40%
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0%

There’s one simple but essential habit: keep a list – like St. Nicholas himself – of all sizeable gifts, dates and values. It avoids confusion for executors and gives clarity to your beneficiaries.

Gifts ‘with reservation’ – where good intentions meet technicalities

A surprising number of financial gifts come with strings attached, often unintentionally. Giving your relative a painting but continuing to hang it over your mantelpiece means the gift will likely still be treated as part of your estate.

Homes can be particularly tricky. If you gift your Tuscan villa, for example, but continue to spend your holidays there, then you must pay market rent and share bills appropriately. If not, HMRC will considers this a gift “with reservation”, and the property may well remain in your estate for IHT purposes.

Gifting your home

There are generous IHT exemptions for spouses, civil partners and direct descendants inheriting main residences. But gifting your home during your lifetime requires careful planning.

• If you move out and survive seven years, the property is normally considered to be outside your estate.
• If you stay living in the property, then rent and expenses must be paid to the new owners – unless you gift only part of the home and live there with them.

Property-based gifting is one of the areas where professional advice is indispensable. The rules are navigable, but professional attention to detail is essential.

Using trusts or investment companies to create a legacy

Some gifts are meant to last generations. Family trusts and Family Investment Companies (FICs) are two ways to formalise this intention. They can help with:

• asset protection
• supporting children or vulnerable relatives
• ring-fencing wealth
• planning for succession in a tax-efficient way

Once assets are placed into a trust or FIC, they belong to the structure and no longer to you personally. You may retain control, but the tax treatment changes. Trusts and FICs can be powerful tools but require careful design and expert guidance.

Giving to do good – philanthropy at Christmas

December is a popular month for charitable giving and for good reason. It pairs goodwill with tax relief.

Through Gift Aid, charities can reclaim tax on individual donations. Companies can treat charitable donations as an allowable way to reduce taxable profits and can donate equipment, vehicles, shares or property with potential tax reliefs.

For many company owners, making substantial charitable donations is a very rewarding way to give back after years of success.

Stay on Santa’s nice list

• Small gifts of up to £250 per person are freely allowed – ideal for festive stocking fillers.
• You can give up to £3,000 each year tax-free, with one year’s carry-forward.
• Weddings come with additional allowances: £5,000 for children, £2,500 for grandchildren, £1,000 for others.
• Regular payments from surplus income are exempt if affordable and well-documented.
• Large gifts may trigger the seven-year rule, so keep detailed records.
• Avoid ‘gifts with reservation’ by ensuring you no longer benefit from the item.
• Gifting property requires careful planning, especially if you remain living in it.
• Trusts and FICs can secure long-term legacy gifting but need expert advice.
• Charitable giving can be highly tax-efficient for both individuals and companies.

Final thoughts

Generosity is one of the great joys of the festive season, whether it takes the form of a crisp note tucked inside a card, help with a major life milestone, or a philanthropic contribution that reflects your values.

With the right planning, your gifts can be both heartfelt and tax-efficient, creating a legacy that lasts far beyond the twinkling lights of December.

Successful financial gifting is a blend of sentiment and strategy. It’s a way to support the people and causes you love while ensuring your generosity works exactly as intended. With a little foresight and expert advice where needed, you can give confidently, joyfully and tax-wisely, at Christmas and throughout the year.

If you would like to discuss your gifting or philanthropy strategy, whether at Christmas or at any time of year, please get in touch.

Source: www.gov.uk/inheritance-tax

The information provided in this article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax treatment depends on individual circumstances and may change in the future. Readers should seek independent professional advice from a qualified tax advisor before making any decisions. The Bank accepts no liability for actions taken based on this information