What will you be giving this Christmas?
14 December 2017 by Diane Rudd
Christmas traditionally is a time for giving. Santa is very lucky – he does not need to worry about the tax implications of delivering gifts to all good children (and I am hoping to at least one adult too!). Unfortunately, that is not the case for the rest of us and if we are not careful the Inheritance Tax man will be wanting his share either now or perhaps later (depending on the size of the gift).
One way to avoid paying Inheritance Tax is to make “small gifts”. There are several types of small gifts and arguably the best known is £3000 per tax year. This can be divided between several people and if the previous tax years £3000 has not been used it can be added to the current £3,000 to make a total of £6000. There are also sums of £250 which can be given each tax year to anyone who has not benefited from the £3000 so in theory, you could give £1500 to each of two people and £250 to each of another hundred people. Using football as an example, in the first year of giving a referee could be given £6000 and every supporter in the football ground could be given £250.
Another way to avoid Inheritance Tax is marriage gifts. Each parent of a bride and groom can give £5000 and each grandparent £2500. Any other person such as a relative or friend can give £1000. This also applies to civil partnerships.
A comparatively rarely used gift is normal expenditure out of income”. The Tax Man looks closely at such gifts as they have to be made out of surplus income – the Tax Man assumes that income will be initially used to make rent or mortgage payments, pay bills, even pay for holidays etc – and such gifts should be regular. Some people set up direct debits or standing orders perhaps twice a year.
Gifts to charities, spouses and civil partners are all tax free even if large amounts are given as are gifts to (for example) the British Museum, National Gallery and other bodies specified in Tax Law.
Finally, gifts to political parties are also Tax free so if anyone wanted to put a gift in the Christmas stockings of Teresa May or Jeremy Corbyn for their political parties they are free to do so!