Did you know your Christmas gifts to others might attract inheritance tax? Making sure that you are fully informed will prevent your loved ones from getting any nasty surprises, plus careful planning could mean you get a Christmas gift of your own - a reduction in your inheritance tax!
For expert guidance on inheritance tax, and to ensure that you can be as generous as you would like to be this Christmas, contact us today.
Gifts given within the last seven years of your life may be subject to IHT, depending on who you gave them to and what their value was.
Small gifts made out of your regular income are known as ‘exempted gifts’ and do not incur IHT. You can give up to £250 cash to as many people as you choose without attracting IHT.
There is no excuse not to be generous when it comes to gifts for your spouse or civil partner. So long as they permanently reside in the UK, you can spoil them without worrying about IHT.
If you are not married, or your partner does not live in the UK, IHT can be more complicated, so it is best to speak to an expert.
Everyone can give away cash or assets worth up to £3000 per year without incurring IHT. This is known as your annual exemption or ‘gift allowance’. Couples can combine their allowance to give their children or grandchildren up to £6000 per year.
If you are looking to reduce your IHT liability, then make the most of your annual exemption. The yearly allowance runs from 6 April to 5 April, so Christmas can be a good time to use it if you have not yet reached the maximum. You can roll over any leftover allowance to the following year, but only for one year.
Christmas is a time for giving, so it’s good to know that you can donate any amount to a charitable cause without incurring IHT.
Money left to charity is deducted from the total value of your estate before IHT is calculated, so making a donation can reduce your liability. If you leave more than 10 % of your estate to charity, the rate of IHT payable on the remainder could even be reduced from 40 % to 36 %.
Rather than give a one-off present this Christmas, you may prefer to establish a gift that keeps giving all year round, like a regular contribution to your grandchild’s savings account.
You can make a regular gift tax-free so long as the amount you give comes out of your income and you can maintain your usual standard of living after it has been made.
The importance of keeping records
When making gifts, whether at Christmas or any other time, you should maintain records of what the gift was, how much it was worth, who received it and when you gave it to them. Doing so will make it much easier for your executors when they come to calculate the IHT due on your estate.
Estate Planning Solicitors, Bournemouth, Poole & Christchurch, England
The rules surrounding gifts, inheritance tax and exemptions are complex and, as with every aspect of Wills and estate planning, you should consult an expert to ensure your affairs are effectively handled.
Talk to our knowledgeable team today for guidance on making the most of your gifting allowance and any other queries related to estate planning. Call us on 01202 802 807 or complete our online enquiry form to arrange a no-obligation consultation.