Giving gifts to your loved ones can be an excellent way of reducing the size of your estate, and therefore your Inheritance Tax liabilities.
But what about Christmas gifts? Are these tax exempt, or should you tread carefully when it comes to treating your loved ones this holiday season?
Tax exempt gifts
Unfortunately, there is no easy answer. Estate and tax planning is a complex topic, which is why many people choose to speak to an expert, before taking any action.
However, it is helpful to know that gifts made between married spouses are not subject to Inheritance Tax, so long as your spouse lives permanently in the UK. Gifts to charity are also entirely tax exempt, no matter how much you give.
Furthermore, every year you can give away up to £3,000 worth of gifts from your estate, without incurring Inheritance Tax. A gift is often money, but it might also be personal possessions, property, or the loss of an asset’s value when it is transferred (which typically happens when a house is transferred to a child for less than the market value).
If you do not use all your annual tax exemption for one year, you can actually roll it over to the next year. For example, if you only gift £2,000 to loved ones in 2018, you can then gift up to £4,000 in 2019. Nevertheless, you can only roll it forward for one year. You cannot accumulate several years’ worth of annual tax exemption.
In addition to this £3,000 annual tax exemption, you can make other gifts throughout the year, again without incurring any Inheritance Tax. These gifts are as follows –
- Gifts out of your normal income, including Christmas and birthday gifts
- Wedding and civil partnership gifts of between £1,000 and £5,000, depending on your relationship to the bride/groom
- Gifts to help with an individual’s living costs
- Gifts of up to £250, providing the recipient has not already received a tax-exempt gift from you that year
Therefore for the scope for using your inheritance gift allowance this Christmas is extensive. Nevertheless, you must ensure that you do not surpass the tax-exempt threshold. Otherwise if you die at any point within the following seven years, any gifts which are above the threshold will be subject to Inheritance Tax.
If you do decide to use your inheritance gift allowance this Christmas, be sure to keep a record of exactly how much you have given, and to whom. This will be an enormous help to your executors when they are later called upon to complete the probate process.
Contact us now
If you would like to speak to a specialist solicitor about making tax exempt gifts this Christmas (or indeed, at any time of the year) our Later Life Planning team can help. We offer accurate and practical legal advice, ensuring you protect the best interests of you and your loved ones, without falling foul of the Inheritance Tax laws.
To find out more, please call Debbie on Southport 01704 532890 or Liverpool 0151 928 6544 or email firstname.lastname@example.org.