Knowing your limits at Christmas
Christmas is often described as a time for giving, but did you know that there may be tax consequences on your future estate depending on the value of your gift? Of course, how much you wish to give and to whom is completely up to you; however, it is important that you consider any ramifications.
Under section 20 of the Inheritance Tax Act 1984, a person can gift up to the value of £250 per recipient per tax year without triggering any Inheritance Tax consequences. If you wished to gift more than this, you are able to offset the amount against your annual exemption of £3,000. If you have not used this exemption for the previous tax year, you can roll this forward, and therefore have £6,000 of tax exemptions available.
You may wish to make a substantial gift to your spouse or civil partner. Gifts between spouses are tax-exempt, though gifts to partners, children and other members of the family are not. If you make gifts over your personal allowance, provided you survive more than seven years from the date of making the gift, your estate will not be liable for Inheritance Tax on the amount. If you do not, then the gifts become “potentially exempt transfers” under section 3A of the Inheritance Tax Act 1984, and the taxable amount will be included in your estate at the date of death.
If you wished to make any gifts to charity, such gifts are tax free and therefore have no bearing on your taxable estate.
It is worth pointing out that if you do make any significant gifts and they may need to be brought into account when considering whether any Inheritance Tax is payable on your estate, it is important that you keep records detailing what was given and to whom, when the gift was made and how much it was worth. Your Executor will need these details when completing the Inheritance Tax account.
If you are unsure of any aspects of gifting, at Christmas or any other time of year, you may wish to seek advice to ensure that such gifts are made in as tax-efficient way as possible. Our Succession Planning team would be happy to advise you, and can be contacted here.