As we enter the Christmas season, are you considering generous gifts for your loved ones? If so, we take a look at the implications for Inheritance Tax. With an eye to 2020, we’re also only weeks away from the deadline for filing your Tax Return.

Gifts & Inheritance Tax

When you make a gift to loved ones, or other individuals, the ‘gift’ may be considered as a transfer of part of your estate. As a consequence, a life-time charge to IHT may be applied. In most cases, don’t worry, you won’t need to get your cheque book out, as there are several exemptions that may apply to your intended gifts.

The following gift exemptions are available:

  1. You can give up to £3,000 worth of gifts each tax year (6th April to the 5th April) without them being considered as part of the value of your estate. Formally known as an ‘annual exemption’.
  2. The rules allow you to carry forward any unused annual exemption – but only for one year.

In addition, each tax year, you can also give away:

  1. Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  2. Gifts out of your income, eg Christmas or birthday presents. Although, you must be able to maintain your standard of living after making the gift
  3. Payments to help with another individual’s living costs, such as an elderly relative or a child under 18
  4. Gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Even if your gift is not excluded by these exemptions any tax payable can be deferred under the “potentially exempt transfer” or PETs. Essentially, as long as the person making the gift lives seven years after making the gift, no IHT is payable. A sliding scale applies if the donor dies during this seven year period.

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