For many, Christmas involves giving money or gifts to family, friends and others and without wanting to sound too much like Scrooge, it is important to remember how to give within the constraints of the Inheritance Tax (IHT) rules this Christmas. Ordinarily, any gifts not covered by the exemptions listed below require you to survive the date of the gift by seven years. Here is a brief reminder how to give this Christmas without needing to survive seven years or causing an IHT problem for your estate:-
- Charities – Charities are exempt from IHT, so you can give an unlimited amount to charity at Christmas (or any other time of the year!);
- Surplus income – if you have surplus income that you would ordinarily convert into capital, this can be given away without the need for you to survive seven years. The key is a pattern of giving, so this should be kept under review at Christmas (and throughout the rest of the year);
- Small gift exemption – you can give up to £250 to anyone, regardless of whether they are related to you. This cannot be used in conjunction with the annual exemption (see below);
- Annual exemption – everyone has an annual exemption of £3,000 which they can give away each tax year. Any unused annual exemption from the previous tax year can be used as well. You can split your annual exemption between multiple recipients, so long as they are not the same recipient for the small gift exemption;
- Spouse / civil partner exemption – transfers between spouses / civil partners are exempt from IHT so you can give away as much (or even as little!) to your spouse / civil partner without any adverse IHT consequences.
‘Tis the season to be jolly but please bear in mind the above rules when giving this Christmas. If you would like any more advice about your estate planning or tax affairs, please contact a member of our Tax Planning team.