Christmas – a time for giving

With Christmas upon us, inevitably our thoughts turn to the giving of gifts – but have you considered that there could be inheritance tax (IHT) implications for your estate in making gifts of a substantial value?

Whilst many gifts are free of IHT, gifts worth more than £3,000 in any tax year are classified as “potentially exempt transfers”. This means that their value remains in your estate for seven years after the date of the gift and could be liable to inheritance tax if you died in the intervening period.

An individual can gift up to £3,000 in any tax year free of IHT. In addition, it is possible to carry forward and use your annual allowance of £3,000 for one previous tax year if the allowance was not used during that year, making a maximum of £6,000.

Unlimited gifts of up to £250 may be given without using your annual allowance, provided each recipient does not receive additional gifts from you during the tax year. Gifts on marriage or civil partnership are tax free up to £5,000 from each parent of the couple, as are £2,500 from each grandparent or great-grandparent, and £1,000 from anyone else, provided the gift is given on marriage or just before. Gifts from one party to a marriage or civil partnership to the other, provided both are domiciled in the UK, are exempt from tax; as are payments gifted for maintenance purposes for a relative, old or young, who is dependent on you.

If you have surplus income in a tax year, you may make unlimited gifts from that surplus income without the usual seven year rule applying. However, it is very important that detailed records are kept to demonstrate that the gifts were from surplus income and that there is an established pattern of giving.

For more information or advice regarding the tax implications of lifetime gifts, please contact any member of our Private Client Team.

Author
Julia Bilton
Chartered Legal Executive
Direct Dial: +44 (0)1242 246434
Email: jbilton@hcrlaw.com