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Legal News | 20.12.18

Who’s been naughty and who’s been nice?

How can you treat those on the nice list, be tax efficient and be more popular than ever this Christmas, all in one go?

Tax efficient gifting that’s how!

Gifts can be liable for Inheritance Tax (IHT) if you give away more than £325,000 capital in the 7 years before your death. While for some this tax charge can be unavoidable, there are ways in which tax efficient gifting can significantly reduce any potential tax charge for others.

1. For those at the top of the nice list? 

  • You can make a gift of £3,000 capital, tax free in any one tax year, and can carry forward last year’s unused £3,000 tax allowance…. but you are only allowed to carry forward any unused allowance from one previous tax year.
  • The £3,000 can be given to just one person on your ‘nice list’ or can be split between the top few in any way you please.

So how can you reward that person at the very top of the nice list? 

If you did not make any gifts of capital in the 17/18 tax year and have not made any capital gifts in the current 18/19 tax year then you can give away £6,000 this Christmas without any IHT implications – as a couple that’s £12,000 you can give away….which should make someone very happy this Christmas!

2. For those part way down the list?

You are also able to make as many small gifts as you like, of up to £250 per recipient, free of IHT. Please note that you cannot combine these allowances so if you have made a gift of £3,000 to one person, you cannot also make a £250 gift to that same person.

3. Are you attending a festive wedding?

If you’re going to a wedding or a civil partnership, there is a tax exemption for gifts made on or before the registration of the marriage and this gift can be made to either one or both of the parties.

These gifts are limited as follows:

  1. £5,000 to a child;
  2. £2,500 to a grandchild (or great-grandchild); and
  3. £1,000 to anybody else.

4. Want to spread the Christmas spirit throughout the year?

  • If you are in the fortunate position of having income that is surplus to your needs then you can create a pattern of giving away that surplus income, with no need to survive for any minimum period thereafter for the gifts to fall out of your estate for IHT purposes.
  • In order to claim this exemption after your death, your executors will need to provide relatively detailed information to HMRC. If this is something you have in mind then please speak with your usual contact at Wansbroughs for more guidance.

5. Looking after your elves (and wider family)

If you have a relative who is dependant on you, including an elderly relative, a disabled or an infirm family member, a child under 18 or a child in full-time education, then any gift given to maintain their standard of living is exempt from IHT.

6. Exempt assets and beneficiaries

Certain assets such as business or agricultural assets qualify for relief from Inheritance Tax. If you hold assets of this nature then you may be able to gift them without IHT consequences.

IHT rules for UK domiciled married couples or civil partners mean that you can make gifts between spouses or civil partners with no IHT consequences.

Gifts to qualifying charities are also immediately exempt from IHT.

7. Larger sum gifts

You can make larger gifts of capital at any time no matter the amount; however, in order for the value of the gift not to be brought back into account upon your death and therefore potentially becoming chargeable to IHT, you would need to survive for at least 7 years from the date of making the gift and would need to neither retain an interest in or continue to benefit from the gift.

For more detail or to learn about more exemptions, please either speak with your usual contact at Wansbroughs, call us on 01380 733300 or email wealth@wansbroughs.com.


Posted By Our Wills, Tax, Trusts & Probate Team