The saying goes that it is better to give than to receive. Aside from regular Christmas presents, you may be considering giving money or other assets with a view to Inheritance Tax (IHT) planning, but will your gifting be in a tax efficient way this festive season?
Lifetime gifts attract a number of exemptions and the following can be made either in cash or other assets free of Inheritance Tax:-
- Small Gifts – You can give small gifts worth up to £250 to anybody each tax year – an ideal way to cover a good deal of your Christmas presents this year if you are in a position to do so.
- Annual Exemption – Everyone has an annual gift allowance of £3000 so this might cover some larger Christmas gifts which are more than £250 but less than £3,000. If the full £3,000 has not been used from the previous tax year, you can carry it forward to the next tax year so the maximum one person can gift free of IHT in any two year period is £6,000.
- Gifts out of income – Gifts made out of your income may be exempt from IHT. Such gifts must be made from income as opposed to capital. There must be a regular pattern of gifting, although not frequent, so this exemption could be appropriate to cover annual Christmas gifts. It is wise to keep detailed records to demonstrate that the gifts are coming from your income. Such gifts must not change your normal standard of living.
- Gifts to charities and political parties – If you decide that you would prefer to make a donation to a charity or a political party this Christmas then such gifts are generally free from IHT so long as the charity or political party is registered in the UK.
- Gifts between spouses or civil partners – Your spouse or civil partner may be the main recipient of your Christmas gifting and such gifts of any amount are also free from IHT. There are different rules for non-married partners.
- Gifts in anticipation of a Wedding or Civil Partnerships – Weddings and Civil Partnerships seem to be becoming more popular over the festive season. Regardless of what time of year the Wedding or Civil Partnership is, each parent of the bride, groom or partners can give £5,000 free from IHT. Grandparents or other relatives can give £2,500 and anyone else can give up to £1,000 free from IHT.
- Potentially Exempt Transfers (PETs) – If your Christmas gifts do not fall in to any of the above categories, you can still give away as much capital as you like. So long as you live for at least 7 years after making such gift and you retain no benefit from them, then they should be free from IHT.
If you would like advice on the tax efficiency of your gifts this Christmas then contact a member of our Private Client team.
