Prepare for the season of giving

28 November 2019

With the multitude of festivities at this time of year, from Thanksgiving to Hanukkah, it’s not just Christmas when gifts are given. Typically, you wouldn’t expect a tax accountant to get involved with your present plans, but if you decide to make a cash gift this year you may incur inheritance tax (IHT) liabilities. Being aware of the values that are covered by IHT exemption is an easy way to stay off HMRC’s naughty list.

Let’s start small and work our way up

  • ‘Normal’ gifts out of your income, for example Christmas or birthday presents, are exempt, as long as you are able to maintain your standard of living after making the gift.
  • You can give out small gifts up to the value of £250 per recipient, to as many people as you desire. Useful for grandparents with large families!
  • You have an annual IHT exemption of £3,000 of monetary gift giving per year (per donor). Unused allowances can be carried forward one year and used the following year.
  • Outside of annual holidays and birthdays, extra gifts can be made for special occasions such as weddings or civil ceremonies. If this is for your own child, £5,000 can be given without IHT consideration. For grandchildren, £2,500 can be given free of IHT, and for any other relation up to the sum of £1,000 can be given.
  • Gifts outside of your normal income can be a little more interesting. Instead of a fixed figure, IHT exemption considers the total level of your income and expenditure, and allows for gifts from surplus income which form part of a regular pattern of gifting to be immediately exempt from IHT.

Substantial gifts

Obviously, larger gifts can be made but be aware of the IHT implications. 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. Currently, if larger gifts are made within seven years of the donor’s death, IHT will be applicable between 8% and 40%. For such, gifts professional advice should be obtained.

As specialists in tax planning, trust creation and probate, should you have any queries surrounding gift giving, please do contact me or one of our licensed specialists in your area.

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