We all spend a lot of time and money at this time of year so that our loved one receive gifts they will love. Even the taxman gets into the festive spirit and admits that Christmas presents, and birthday presents are exempted gifts for inheritance tax as you pay for them out of your normal income. Please note that your standard of living should not be impaired by the cost of the gifts!
What other gifts can be given tax free?
Gifts between spouses or civil partners, providing that both of them are domiciled in the UK, are exempt. If one spouse/civil partner has a foreign domicile the rules are different.
You have an annual allowance of £3,000 which you can give away in the tax year or carry forward to the next year. If you do not use it in that year it will be lost.
You can make wedding/civil partnership gifts of up to £1,000 per person. This increases to £2,500 if the recipient is a grandchild and £5,000 if the recipient is a child.
You can make payments to help an elderly parent or child under 18.
You can make gifts to charities and political parties.
You can give small gifts of up to £250 per person to as many people as you wish. If you exceed the £250 the whole gift becomes a Potentially Exempt Transfer (PET), providing you live for 7 years after making the gift no Inheritance Tax will be payable.
Gifts that keep on giving
If you wish to pass wealth to your children and/or grandchildren you may wish to make larger gifts either directly to the recipients or into Trust where the funds can be held in a way that keeps the capital safe and income can be distributed. Properties, cash or income producing assets can all be transferred into a trust. You can set up trusts during your lifetime or in your will.
It is always best to take professional advice on the most tax effective way to achieve your desired outcome. Here at Child & Child we can help you to review your position and come up with a plan that ensures you will have sufficient to meet your needs whilst also assisting future generations. We can draft Trusts, Wills and Lasting Powers of Attorney and advise on the tax implications, completing tax returns for individuals and trusts as required.