Tax – make the most of your allowances!
23 February 2018 by James Bird
Tax! The three letter word which nobody likes to hear. Most will be familiar with the basic principles of Income Tax and possibly even Capital Gains Tax. The last of the big three for individuals is Inheritance Tax (sometimes referred to as death duties). All of these mean that we have to pay money to the government. But what some people might not be aware of are some of the exemptions that can apply, in particular with Inheritance Tax. With the tax year coming to an end shortly (5th April 2018) there is still time for you to possibly make use of these exemptions.
One of the most notable of these exemptions is called the “annual exemption”. This allows you to make gifts of up to £3000 to anyone each year and should you pass away in the next 7 years then this is not included in your estate. In addition to this, the annual exemption of £3000 can be carried over 1 year if it is not used, so if you did not make any gifts last year then you could double up to £6000 for this tax year. The carry forward only applies for 1 year though (so you can’t claim unused allowance from 2 years ago etc).
As well as the annual exemption, it is also possible to give gifts of up to £250 to any person without any tax liability. You can give as many gifts of £250 as you want so long as the gift does not fall within another exemption category. Each gift of £250 must also be to a different person (so you can’t just give one person a gift of £5000 consisting of £250 gifts).
There are also further tax exemptions which apply to specific occasions. You might not be able to use these every year but keep them in mind for when the time might arise.
In summary, these include:
- wedding or civil ceremony gifts of up to £1,000 per person (increased sums of £2,500 apply if the person getting married is a grandchild or great-grandchild, or £5,000 if they are your child.)
- normal gifts out of your income, for example, Christmas or birthday presents. It should be noted that in order for this exemption to apply, you must still be able to maintain your standard of living after making the gift so you cannot deliberately deprive yourself.
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
The tax year ends on 5th April 2018 so if you have not made use of any of these exemptions it might be worth considering making a gift or two if suitable, particularly the annual exemption.
If you have any concerns about inheritance tax or making a Will, then please feel free to contact our Wills, Life Planning and Probate department who will be more than happy to assist. Please contact the team on 01206 700113 or [email protected].