As Christmas Day approaches, you might be considering making cash gifts to your relatives. With this in mind, this newsletter hopefully provides a useful outline of how you can make these gifts in an inheritance tax effective way. Annual £3,000 exemption Current rules allow you to make outright gifts up to an annual limit of £3,000 with no inheritance tax consequences. Further, if this exemption has not been used in a tax year it can be carried forward (for one year only). This means that if you have not made any capital gifts since 6 April 2009, you could make a gift of £6,000 now with no inheritance tax implications. The new tax year begins on 6 April 2011 and then another exemption will be available; you can therefore make a further gift of £3,000 after 6 April. Small gifts exemption You can make gifts up to £250 to as many people as you like in any tax year without any inheritance tax consequences. You could, for example, give £250 to any children or grandchildren now (and again after 6 April 2011) with no inheritance tax consequences. Please note that you cannot combine this small gifts exemption with any other exemption (e.g. you cannot combine £250 with the £3,000 annual exemption and give someone £3,250). Gifts that are part of your normal expenditure Any gifts you make out of your after-tax income (but not your capital) are exempt from inheritance tax if it can be shown that you have enough income to cover the gifts and your usual daily expenditure without having to resort to using up your capital. Gifts from surplus income must be shown to be part of your regular expenditure and could therefore cover a monthly direct debit payment e.g. to a child or, alternatively, regular premiums on a life insurance policy (for you or for someone else). If you wish to make regular gifts from your surplus income then we recommend that you keep a schedule of your (after tax) income and expenditure, including gifts, that can be shown to the Revenue after your death if required. As long at it can be shown that the gift is made out of income and is part of a pattern or intended pattern of giving, there is no limit to the amount which qualifies for the exemption. Where circumstances permit, therefore, this can be a very useful tax free way of giving. Further exemptions for lifetime giving are available. If you would like further advice or assistance then please speak with your usual contact at Wansbroughs. Finally, we take this opportunity to wish you a merry Christmas and a prosperous 2011. | 
