With Christmas here and everyone hopeful of the resumption of normal life next year, you may be considering making gifts to family, friends or charities.
The normal rule for lifetime gifts is that inheritance tax (IHT) does not apply as long as the donor lives for at least seven years following the gift. However, if any of the following exemptions apply, the gifts are instead completely exempt from IHT. This means that the gifts would not use up part of the donor’s IHT tax-free allowance (nil-rate band) even if he or she died soon after the gift had been made.
Every year you can make one gift or a number of gifts worth a cumulative total of £3,000 without any IHT implications. Any unused part of the annual exemption can be carried forward one year, so if you made no gifts in the previous year, you have an exempt amount of £6,000 available to use in the current year.
Gifts of £250 to any individual are exempt from IHT. The gift to each individual must not exceed £250, but you can make gifts of this amount to any many different people as you like.
Although the pandemic has prevented many weddings this year, gifts prior to, or at the time of, a marriage carry a special exemption. The exempt sum varies depending upon your relationship with the parties to the marriage, as follows: -
- £5,000 if giving to your child,
- £2,500 if giving to your grandchild, or
- £1,000 if giving to any other person.
Gifts out of Surplus Income
If you find that you have a surplus of income each year after meeting your normal outgoings, you can make gifts from the surplus income without any IHT implications, provided the conditions for the exemption are met. To benefit from this exemption, it is important that a pattern of regular gifting is established. The gifts must not impact your way of life or cut into your capital assets, and although a degree of personal income/expenditure accounting is required each year, the exemption can be very effective.
You may also be considering embracing the charitable traditions of the festive season, and all gifts to charities are exempt from IHT, without limit on value of the gift.
In addition, depending on your taxpayer status you may also reduce your income tax or capital gains tax liability by making Gift Aid or Share Aid donations to charity.
If you have any questions regarding lifetime giving or the tax exemptions which are available, our specialist team are very happy to help.