As the festive period arrives and the male contingent still have not even thought about Christmas presents, let alone actually purchasing them, there is one present that may make a lot of sense for you to gift, in more ways than one. No, it is not a HMV voucher, or even a pestle and mortar as my dad thought would be a good present for my mum…….no, the gift I am talking about is…… well, gifting.
What are you on about?
Good question. More than ever before tax is being collected by means of Inheritance Tax (IHT) as asset values continue to rise whereas the nil rate band remains frozen. Even with the introduction of the residence nil rate band, many individuals’ assets are above this level.
As a recap, you have a nil rate band of £325,000 (for married couples this is £650,000) meaning that up to this figure, your estate is not subject to IHT but any value of over this is taxed at 40%. There is also the residence nil rate band, which subject to certain criteria being met, adds a further £175,000 per person (£350,000 for married couples) to your estates value. All in all, you could have up to £500,000 before any IHT is levied (£1m for married couples).
Where does gifting fit into this?
A gift can include anything such as money, household or personal goods, stocks and shares or a house, land or buildings. Gifting between spouses or civil partners does not attract any IHT as long as they live in the UK permanently and there is also no IHT to pay on gifts to charities or political parties.
Many will be familiar with the 7-year rule with gifting, usually with larger sums to try and reduce the value of assets, but there are some ways to gift money/assets which do not attract any IHT or 7-year ruling which should be considered if you wish to make gifts but on a smaller scale.
- Annual Exemption – you can gift £3,000 without it being assessed for IHT. This can be one gift to one person or a number of gifts to a number of people, so long as the total does not exceed £3,000. If you have not used this in the previous tax year, then you can carry forward this allowance.
- Small Gifts – you can make as many gifts of up to £250 per person as you wish each tax year so long as you have not used another allowance on the same person.
- Weddings/Civil Partnerships – You can gift sums to anyone who gets married or starts a civil partnership. These sums are, £5,000 for your child, £2,500 for your grandchild or great-grandchild and £1,000 to anyone. Notably, these can be combined with any other allowance except the small gift allowance.
- Gifts from Income – You can make regular payments from your income so long as you can afford the payments after meeting your living costs and that you pay these amounts from your regular monthly income. Again, you can combine this allowance with any other allowance except the small gift allowance.
So rather than buy that HMV voucher or pair of socks (or maybe in addition to if you buy a pestle and mortar) perhaps you should consider making gifts, not only this Christmas, but every year, because not only so someone can go and buy what they actually want for Christmas or receive a sum of money but also it’s a way to reduce your estate and not pay any IHT.
The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.
You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.
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