Tis the season of gifts

Christmas is fast approaching and many people will be looking to make gifts to family members. A majority will also be making cash gifts without knowing the potential Inheritance Tax (IHT) implications or that certain values are covered by IHT exemptions.

  • Individuals have an annual exemption of £3,000 per year (per donor) that is immediately exempt from IHT. Unused allowances can be carried forward one year and used the following year.

  • Small gifts can be made each year up to the value of £250 per recipient, to as many recipients as you desire and immediately exempt from IHT. This is typically useful for grandparents looking to provide gifts for the grandchildren.

  • Gift out of income – this is more interesting. Rather than there being a fixed figure that can be gifted each year, it looks at the total level of income and expenditure of the donor and permits for gifts from surplus income which form part of a regular pattern of gifting to be immediately exempt from IHT.

  • Extra gifts can be made for special occasions such as weddings or civil ceremonies. If this is for your child, £5,000 can be passed without giving rise to an IHT issue. For grandchildren, £2,500 can be passed free of IHT and for any other relation up to the sum of £1,000 can be passed.

Clearly, you can also make gifts of more substantial value but need to be aware of the IHT implications to take into consideration on the transfer. Making gifts with high values might be considered a Potentially Exempt Transfer (PET – typically an outright gift) or Chargeable lifetime transfers (CLT – typically the creation of a family trust). For such gifts, professional advice should be obtained.

Should you have any queries regarding tax planning surrounding gifts or creation of Trusts, speak to one of our licensed specialists in your area.