Think before giving a generous Christmas gift (or at any other time …)

We all want to treat our loved ones, especially when it comes to Christmas or Birthdays.

Perhaps you’re a grandparent wanting to give an extra special gift to your grandchildren this Christmas or a new parent wanting to create a nest-egg (to gather interest) they’ll enjoy when they’re older.

Whatever the reason for your gifts this Christmas - and whoever the recipient - it’s important you’re making the most of your money. To do this, you need to be aware of the tax implications of the gifts you give.

When are your gifts subject to inheritance tax?

A gift is anything that has value given to someone without payment. This can be anything from money or a discount on a large sale, such as a house, to property itself or everyday possessions.

Small birthday or Christmas presents don’t usually incur inheritance tax as they’re often known as ‘exempted gifts’ [anchor link to below section].

You are also able to gift your spouse or civil partner as many gifts as you like during your lifetime, providing they are a full-time UK resident. Any gifts - which are neither exempted or to your spouse or civil partner - will count towards the value of your estate, meaning they could be liable for inheritance tax further down the line.

Exempted gifts

You have an annual gift allowance (or annual exemption) each tax year of up to £3,000 (6 April to 5 April the following year). This means that up to the value of £3,000, your gifts are not added to the value of your estate and therefore not subject to inheritance tax. You are able to carry this forward but only for one tax year.

Each tax year, in addition to the above, as part of your annual exemption, you can also gift:

• Wedding gifts – these can be up to the value of £5,000 for a child, £2,500 for a grandchild or great grandchild or £1,000 for another family member or close friend.
• Normal income gifts – providing you are able to maintain your standard of living, birthday or Christmas gifts out of your income form part of your annual exemption.
• Small gifts – you are able to gift as many gifts up to the value of £250 per person each tax year providing you’ve not already used another exemption on the recipient.
• Charitable or political party gifts.

Inheritance tax

If your gift is given in the three years before you die, and is subject to inheritance tax, it’s charged at 40%. If the gift is more than three years before you die, it will be taxed on a sliding scale known as ‘taper relief’:

• Less than 3 years = 40% tax
• 3-4 years = 32% tax
• 4-5 years = 24% tax
• 5-6 years = 16% tax
• 6-7 years = 8% tax
• 7+ years = 0% tax

 

The above figures are taken from HMRC’s website (https://www.gov.uk/inheritance-tax/gifts).

 

If you’re still unsure how to ensure how to give full value of your gift, or you’d like to find out more information, please get in touch using our General Enquiry form.

At Whateley Wealth Management, we believe everyone deserves a secure financial future, let us help you to achieve yours.

 

 

The above article assumes a person with an estate of a value where inheritance tax would apply (ie £325k and above).

The rates and bases of taxes and reliefs are current at the date of publication and are subject to change in the future. The benefit of any reliefs or allowances will depend upon your personal circumstances.