10 Nov Inheritance tax on Christmas Gifts
Are you thinking of giving Christmas gifts to your loved ones? With Christmas less than a week away, you may now be panicking about what to give your loved ones. Rather than join the chaos of the last minute Christmas shoppers, you might consider giving a cash gift this Christmas.
Beware of triggering an IHT bill on Christmas gifts
When deciding what to give as Christmas gifts. Thus, the possibility of triggering an unintended inheritance tax liability isn’t one that comes to mind immediately. But, there are traps that may catch the unwary.
Income or capital
When making a gift, it is important to find out whether the gift is being made out of income or from the capital. There is an inheritance tax exemption for normal expenditure from income. To qualify, the gift made and only from surplus income. It ‘s critical that you have enough revenue left after making the gift to sustain your lifestyle. To avoid unwanted questions, it is a good idea to set up a regular pattern of giving. Thus, keep the records to show that the gifts taken from income.
A gift is taken from capital. For example, from the proceeds from the sale of a property or a gift of a valuable antique. Which will reduce the value of the estate? Unless the gift falls within the ambit of another exemption. The gift will be an exempt transfer (PET) and will take into account in working out. The inheritance tax due on.the estate if you die within seven years of making the gift.
Gifts to spouses and civil partners
The inter-spouse exemption protects gifts between spouses and civil partners. Gifts of any value can give to a spouse without worrying about the inheritance tax.
Annual allowance – Annual allowances for gifts
Everyone has an annual allowance for inheritance tax purposes of £3,000. The annual allowance enables you to give away £3,000 every year in assets or cash. Besides, the gifts covered by other exemptions, without it being added to the value of your estate.
You can also carry forward the annual exemption to the following year if it is not used. So, if you did not use it in the last tax year. Thus, you can make gifts of up to £6,000 this year without having to worry about inheritance tax. But, any unused allowance is only looking forward to the following tax year, after which is lost.
The small gifts exemption enables you to make gifts of up to £250. Moreover, A year to as many people as you like without having to keep a tally for inheritance tax purposes. The same person cannot enjoy a small gift of £250 besides the annual gifts allowance.
If a family wedding is on the horizon. You can take advantage of the wedding gift exemption to make further gifts. To qualify, the gifts made before the wedding not afterward. The exempt amounts are set at £5,000 for gifts to a child. Thus, £2,500 for gifts to a grandchild or great-grandchild and at £1,000 for a gift to another relative.
Extra note: IHTA 1984, ss. 18 – 22.