Christmas gifts – from an inheritance tax perspective: Tilly Bailey & Irvine

With Christmas getting ever closer, many people will have finished their shopping and have all the presents wrapped. Tilly Bailey & Irvine partner Helen Dexter says now is a good time therefore to think about gifts from an inheritance tax perspective, too....
By Helen Dexter - TBI
Published 10th Dec 2019, 18:00 BST
When making gifts of cash, the rules relating to gifts for inheritance tax (IHT) purposes must be remembered.When making gifts of cash, the rules relating to gifts for inheritance tax (IHT) purposes must be remembered.
When making gifts of cash, the rules relating to gifts for inheritance tax (IHT) purposes must be remembered.

Of course, some will only just be starting their Christmas shopping and be in a state of panic!

When making gifts of cash, the rules relating to gifts for inheritance tax (IHT) purposes must be remembered. Smaller cash gifts are covered by the Small Gifts Exemption, which allows as many gifts of under £250 to separate individuals to be made as you wish – they will all be exempt.

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All taxpayers are eligible to take advantage of an IHT gift allowance of £3,000 per tax year, which will immediately fall out of their estate for IHT purposes. This is one sum which can be split between any number of recipients.

If you wish to make gifts over and above the annual allowance then you would need to survive the gifts by seven years for the value to fall outside of your estate and not reduce your individual tax free allowance (known as the nil rate band) which is available to your estate on your death.

An additional useful ‘gift’ can be the ability to give away an unlimited amount of income. The income however must be ‘excess income’. Excess income is income that you do not spend on yourself in any way. The ability to make gifts out of excess income can be a useful method of stopping your estate from increasing in value.

When making gifts of money it is important that you keep records. There is no formal place to record the gifts. It is just important that the gifts are known about and that, when you pass away, your executors have details of the gifts. If making regular gifts out of income it is absolutely essential that not only are detailed records kept about the gifts but, additionally, that you keep records of your income and outgoings in order that your executors can show that the gifts were indeed made out of excess income (and therefore not capital) and did not compromise your lifestyle.

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It is possible to make tax efficient gifts on the occasion of a wedding too. In this situation, the level of tax relief will vary depending on the relationship between the person who gives the gift and the recipient. Each parent, including step parents, can give up to £5,000 tax free. Grandparents can each give up to £2,500, and other relatives and friends can each give up to £1,000.

Finally, a gift to a registered charity is tax free.

If you require legal advice, please call the largest full service law firm of solicitors in Teesside on 01429 350062 or visit www.tbilaw.co.uk.

Related topics:Teesside