With the countdown to Christmas well under way there may be some of us with a few gifts still to buy. Before resorting to the panic buying of gift vouchers stop and think about the bigger picture and consider whether there is an opportunity to not only make someone happy but to undertake tax planning at the same time.
There are several ways to make over cash or assets to someone without falling foul of inheritance tax (“IHT”)
The most obvious one at this time of year is to make use of the small gifts exemption. Remember that you can gift up to £250 each year to as many people as you like exempt from IHT.
Over and above the small gifts exemption you can gift up to £3,000 each year free from IHT. If you didn’t utilise your full £3,000 in the last tax year you can use the balance this tax year.
A less well known but very useful relief is the gifts out of income relief. Any gifts you make from surplus income as opposed to capital are free from IHT. There is no limit on the sums gifted provided the gifts do not impact on your normal living standards in that the funds used to make the gift are indeed surplus.
A lot of us gift to charity at this time of year so remember any donations to charity are exempt from IHT. If you use the gift aid scheme you can also save on income tax.
The festive season often means a family wedding and each parent of the bride, groom or civil partner can give £5,000 free from IHT. Grandparents and other relatives can give £2,500 and anyone else can give up to £1,000 free from IHT.
Any gifts not covered by the reliefs above will be treated as potentially exempt transfers and provided you live for at least 7 years, such gifts will be free of IHT.
So enjoy gifting safe in the knowledge that inheritance tax is not one of the stresses you will encounter this festive season.