Firm News | 11.12.25

Last Christmas, I gave you…

As we are now in the full swing of Christmas, most of us are thinking about giving gifts, whether to family, friends or charity. Just because it’s Christmas, those gifts do not necessarily fall outside the scope of UK inheritance tax (‘IHT’).

Here is a brief reminder of the rules:

Gifts to family and friends

There are several important IHT exemptions worth noting at this time of year, although this list is by no means exhaustive:

• Spouses and civil partners – no IHT is payable on gifts from a husband to a wife and vice versa, or from one civil partner to the other. There is no limit to the exemption unless in a case where assets pass from one spouse who is long-term resident, for IHT purposes, to another who is not where, in such cases, the exemption is limited;
• ‘Small gifts’ – it is possible to make a gift of up to £250 to any one individual during a tax year, so long as the gifts made in that tax year to that individual do not exceed that amount;
• Gifts out of surplus income – although the conditions are nuanced, broadly lifetime gifts out of income which form part of a donor’s normal expenditure are immediately exempt from IHT so long as the donor (i.e. the person making the gift) is left with sufficient income to maintain their usual standard of living without drawing on capital;
• Wedding gifts – lifetime gifts on the occasion of marriage or a civil partnership are exempt from IHT up to a specified amount. You could give each of your children up to £5,000 free of IHT, up to £2,500 to a grandchild and £1,000 to remoter family or friends;
• Gifts covered by the annual exemption – lifetime gifts that do not attract another exemption may still be exempt if they do not total more than £3,000 in a given tax year. If this annual exemption (or any part of it) is not used in a given tax year, the unused portion may be carried forward but for one tax year only.
• To the extent that a lifetime gift does not qualify for an IHT exemption and is not covered by the annual allowance, the gift will be a ‘potentially exempt transfer’ (‘PET’). PETs may be chargeable to IHT if the person making the gift fails to survive seven years from the date of the gift (although an IHT saving is possible if they survive for at least three years).

Gifts to charity

Gifts made to a charity or Community Amateur Sports Club (‘CASC’) are exempt from IHT. Formerly, the exemption applied to all gifts to qualifying charities in the European Economic Area, but this is now restricted to charities within the UK (and CASCs based in and providing facilities for eligible sports in the UK).

Following last month’s Budget, the rules have been amended further so that whilst a gift will continue to be exempt from IHT if made to a charity, it will no longer be exempt from IHT if the property is given to be held on trust for charitable purposes (unless the recipient trust is itself registered as a charity). This change will mostly impact those making gifts on charitable trusts through their Wills, but it is an important modification of the current rules, which applies equally to lifetime gifts on or after Budget Day.

If you would like any further advice on gifting and the IHT exemptions and reliefs available to you, please contact the Private Client team on wealth@wansbroughs.com