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WITH Christmas getting ever closer many people will have finished their shopping and have all the presents wrapped. However, some will only just be starting the shopping and be in a state of panic!
Now is a good time therefore to think about gifts from an inheritance tax perspective too.
When making gifts of cash, the rules relating to gifts for inheritance tax (IHT) purposes must be remembered. Smaller cash gifts are covered by the Small Gifts Exemption, which allows as many gifts of under £250 (to separate individuals) to be made as you wish – they will all be exempt.
All taxpayers are eligible to take advantage of an IHT gift allowance of £3,000 per tax year which will immediately fall out of their estate for IHT purposes. This is one sum of £3,000 which can be split between any number of recipients.
If you wish to make gifts over and above the £3,000 annual allowance then you would need to survive the gifts by seven years for the value to fall outside of your estate and not reduce your individual tax free allowance (known as the nil rate band) which is available to your estate on your death.
An additional useful ‘gift’ can be the ability to give away an unlimited amount of income. The income however must be ‘excess income’. Excess income is income that you do not spend on yourself in any way. The ability to make gifts out of excess income can be a useful method of stopping your estate from increasing in value.
When making gifts of money it is important that you keep records. There is no formal place to record the gifts. It is just important that the gifts are known about and that when you pass away your executors have details of the gifts. If making regular gifts out of income it is absolutely essential that not only are detailed records kept about the gifts but additionally that you keep records of your income and outgoings in order that your executors can show that the gifts were indeed made out of excess income (and therefore not capital) and did not compromise your lifestyle
It is possible to make tax efficient gifts on the occasion of a wedding too. In this situation, the level of tax relief will vary depending on the relationship between the person who gives the gift and the recipient. Each parent, including step parents, can give up to £5,000 tax free. Grandparents can each give up to £2,500, and other relatives and friends can each give up to £1,000.
Finally a gift to a registered charity is tax free.
If you are in any doubt about your ability to make financial gifts or need clarity about your tax liabilities then expert advice should always be taken. Call Tilly, Bailey and Irvine Law Firm on 01833 830 326 or visit their website to find the right solicitors in Barnard Castle for you.
