The festive season is well and truly upon us. There are 8 sleeps to go until the big day. Trees are going up, there are numerous functions and get togethers to attend, shopping to do – not to mention the Santa lists that are being changed daily in our house (by the kids not me!).
Thoughts also turn to what gifts to buy our loved ones. Christmas is a time for giving and there are several ways to make over cash or assets to someone without falling foul of inheritance tax (“IHT”). Inheritance tax is only payable on any portion of your estate that is above a threshold of £325,000, and is charged at 40%, however this is reduced to 36% if you donate 10% or more of your estate to charity. So rather than hitting the shops why not consider these top 5 gifts for Christmas this year..…
- Small gifts
The most obvious one at this time of year is to make use of the small gifts exemption. You can gift up to £250 each year to as many different people as you like in any one tax year (6 April to the following 5 April) without them being liable for IHT.
- Annual allowance
Over and above the small gifts exemption you can give away £3,000 in each tax year without paying IHT. You can carry forward all or any part of the £3,000 exemption you don’t use to the next year but no further. This means you could give away up to £6,000 in any one year if you haven’t used any of your exemption from the year before.
- Gifts out of regular income
A less well known but very useful relief is the gifts out of income relief. Any gifts you make from surplus income as opposed to capital are free from IHT if they are part of your regular expenditure. There is no limit on the sums gifted provided the gifts do not impact on your normal living standards in that the funds used to make the gift are indeed surplus. This means that you could make regular monthly or annual gifts of the difference between your income for the year and your expenses for the year without them falling into your estate, but you do need to document the intention to provide HMRC after your death if your estate is liable for IHT. If for example, your income is £150,000 p.a but you only spend £100,000, then you could give away the remaining £50,000 without it counting as a gift for IHT purposes.
- Gifts to exempt beneficiaries
- Spouses: If you are married or in a civil partnership, you can give anything you own to your spouse or civil partner if their permanent home is in the UK so your estate won’t have to pay IHT on what the gift is worth. Gifts to an unmarried partner, will not benefit from this exemption.
- Charities: A lot of us gift to charity at this time of year so remember any donations to charity are exempt from IHT.
- National institutions, such as museums, universities and the National Trust as well as UK political parties are exempt.
The festive season often means a family wedding and gifts in contemplation of marriage
are exempt from Inheritance Tax up to certain amounts:
- parents can each give £5,000
- grandparents and other relatives can each give £2,500
- anyone else can give £1,000
You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony.
Any gifts not covered by the reliefs above will be treated as potentially exempt transfers (PETS) and provided you live for at least 7 years, such gifts will be free of IHT.
So go ahead and enjoy stress free gifting without worrying about IHT this festive season.
The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.
Blackadders takes all reasonable steps to ensure that the content of this site is accurate and up to date. The site is not, however, intended as a substitute for seeking legal or other professional advice but rather as an informative guide to the services provided by Blackadders and topical legal developments. Site visitors should always seek advice tailored to their specific situation. Consequently, Blackadders accepts no responsibility for any loss or damage suffered by anyone acting or failing to act on the basis of information contained on this site. Downloading of material contained on this site is at the user’s own risk and all necessary virus checks must first be carried out by the user. Blackadders is not responsible for the material found on any web sites linked to this one and links to this site may only be made with Blackadders prior consent.
Blackadders owns the copyright in this blog and all material contained on it. The material on this site may be downloaded for personal use only and must not be altered. Otherwise, Blackadders’ written consent is required before any material on this site is reproduced, copied or transmitted in any way.
Information passed to us via this site is kept confidential and will not be disclosed to third parties except if authorised by you or required by law.
© Blackadders LLP 2020
Members of the Law Society of Scotland.
Blackadders Solicitors is a trading name of Blackadders LLP, a limited liability partnership, registered in Scotland No SO301600 whose registered office is 30 & 34 Reform Street, Dundee, DD1 1RJ. Reference to a ‘partner’ is to a member of Blackadders LLP.