Christmas is the time for giving and it is becoming increasingly common to gift money or assets to your family to provide for their future. If you gifted money or assets at Christmas or plan to in the future, there are some key factors that you should consider and allowances to be aware of.
What is lifetime gifting?
A lifetime gift can be anything of value from cash to personal possessions or property. If you dispose of any assets for less than its market value, then the difference in value is a gift and will therefore be chargeable.
This is also the case if you gift something that has risen in value since you acquired the asset (for example shares or property), there may also be Capital Gains Tax consequences.
Who can I gift to?
Exemptions and reliefs exist which mean that it is possible to make gifts to certain people or organisations without any inheritance tax (IHT) consequences: This includes:
- A gift to your UK domiciled spouse is wholly exempt from IHT.
- A gift to charities in the UK or other EU member states and certain political parties are wholly exempt from IHT.
There are also allowances available on gifts in certain situations:
If you make a gift in consideration of marriage or as a wedding present this can be exempt from IHT. You can gift; £5,000 to your children, £2,500 to your grandchild and £1,000 in any other case.
How much can I gift and how regularly?
The annual exemption allows you to gift £3,000 each tax year, without any IHT consequences. You can also carry forward this exemption if any is unused in the previous year, so a further £3,000.
Small gifts of £250 or less can also be given at any time to as many people as you want without any IHT.
Any gift that you wish to make regularly and you have the surplus income to cover can also have an exemption from IHT if it meets the following provisions:
- It is part of your normal expenditure and a regular pattern of giving;
- The gift is made out of your after tax income; and
- You are in a position to be able to make the gifts and maintain your current standard of living.
An example of this kind of gifting would be money given to your child on a monthly basis to assist with their living expenses.
We suggest you keep accurate records of gifts you make, to ensure there is a paper trail and record of the decisions made. These records should include details of who the gifts were made to, how much, why, and whether they are from within the annual exemption or out of surplus income.
When should I lifetime gift?
Any one-off gift exceeding £3,000 will not be subject to IHT if you survive the gift by 7 years. If you do not survive 7 years then the gift will use up some of your Nil Rate Band.
Being aware of the exemptions available can hopefully allow you to make gifts in the most effective manner.
If you are considering making a lifetime gift or would like any further information, please contact us. Blake Morgan has a team of specialist and experienced succession and tax advisers that can assist you.
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