Gifts and Inheritance Tax

When you make a gift to third parties you are potentially transferring part of your estate and a life-time charge to IHT may be applied.

However, in most cases you will not need to open your cheque book as there are a number of exemptions that may cover your intended gifts.

The current gift exemptions are reproduced below.

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

 

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Even if your gift is not excluded by these exemptions any tax payable can be deferred under the “potentially exempt transfer” or PETs. Essentially, as long as the person making the gift lives seven years after making the gift, no IHT is payable. A sliding scale applies if the donor dies during this seven year period.

Latest Blog
02
Dec

Tax Diary December 2021/January 2022

1 December 2021 – Due date for corporation tax payable for the year ended 28 Fe...

Read More
02
Dec

Budget bad news 27 October 2021

Readers should take note of the following changes: Income Tax Allowances frozen: The ...

Read More
02
Dec

Budget bonuses 27 October 2021

There was little good cheer in the Chancellor’s announcements to parliament on ...

Read More
02
Dec

Business gifts and tax

Business gifts are not allowed as a tax deduction against profits. The legislation tr...

Read More

CONTACT SIMON COOPER