Giving at Christmas – Inheritance Tax Allowances & Exemptions
Christmas is a time for giving…and most people are very happy if you give them money! However, it is worth remembering your allowances and exemptions for Inheritance Tax.
If your estate is worth more than the Inheritance Tax threshold – £325,000 for the 2013-14 tax year – there are some important Inheritance Tax exemptions that allow you to make gifts to others and not have to pay tax on them when you die:
You can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires.
In addition to the annual exemption there are other exemptions for certain types of gifts. These are explained below.
You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year. However, you can’t give more than £250 and claim that the first £250 is a small gift. If you give an amount greater than £250 the exemption is lost altogether.
You also can’t use your small gifts allowance together with any other exemption when giving to the same person.
Regular gifts or payments that are part of your normal expenditure
Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal lifestyle.
- monthly or other regular payments to someone
- regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
- regular premiums on a life insurance policy – for you or someone else
You can also make exempt maintenance payments to:
- your husband, wife or civil partner
- your ex-spouse or former civil partner
- relatives who are dependent on you because of old age or infirmity
- your children, including adopted children and step-children, who are under 18 or in full-time education
Some gifts made during your lifetime are exempt from Inheritance Tax because of the type of gift or the reason for making it:
Wedding gifts/civil partnership ceremony gifts
Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax, subject to certain limits:
- parents can each give cash or gifts worth £5,000
- grandparents and great grandparents can each give cash or gifts worth £2,500
- anyone else can give cash or gifts worth £1,000
- You have to make the gift – or promise to make it – on, or shortly before, the date of the wedding or civil partnership ceremony. If the ceremony is called off and you still make the gift, or if you make the gift after the ceremony without having promised it first, this exemption won’t apply.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
Article written by guest blogger, Andrew Tucker, Financial Planning Solutions Ltd