Christmas is the time for giving!

Christmas is the time for giving!

Many of our clients will want to make gifts to their family and friends at Christmas.

With planning, these gifts can be made without risking a potential inheritance tax (“IHT”) charge

Gifts made by an individual during their lifetime to another individual are potentially chargeable to IHT – these gifts are commonly referred to as PETs. Provided the donor survives seven years from the date of the gift, this will fall outside of their estate for IHT purposes.

However, there are a number of IHT exemptions which enable individuals to make gifts in their lifetime without having to worry about this seven year clock.

Annual exemption

Individuals can gift £3,000 each tax year free of IHT. Unused exemptions can be carried forward for one year, so potentially a maximum of £6,000 can be gifted in a tax year free of IHT.

This applies per donor, so spouses/civil partners should look to maximise each of their annual exemptions.

Normal expenditure out of income

This is a very generous lifetime IHT exemption.

Gifts are fully exempt from IHT provided they are made from income; the donor has sufficient income after making the gift to maintain their normal standard of living, and the gifts form part of their normal expenditure – there is no limit on the amount that can be gifted, provided these conditions are met.

The donor must establish a pattern of giving, this exemption is commonly used by individuals with modest annual expenditure but high levels of income and can move substantial amounts out of their estate free of IHT.

Small gifts

Gifts of up to £250 per tax year can be gifted to an individual without an IHT charge. There is no limit to the number of individuals the donor can make these small gifts to.

This exemption is particularly useful for grandparents with several grandchildren who wish to make cash gifts at Christmas or on family birthdays.

Gifts on marriage

Going to any weddings or civil ceremonies this Christmas? The following exemptions apply to gifts made on marriage:

  • £5,000 to children
  • £2,500 to grandchildren
  • £1,000 to other relatives and friends

If you have any questions about making gifts and the IHT implications then please call your usual Creaseys contact on 01892 546546, we’ll be happy to discuss this with you.