The season of giving 

Sophie Robinson, wills and probate specialist at Newcastle law firm Sintons, reflects on how financial gifts this Christmas can benefit both the giver and the recipient

With Christmas now only a matter of weeks away, the annual dilemma of what to buy our nearest and dearest has arrived again. As it becomes increasingly difficult to think of something to buy people who already seem to have everything, financial gifts are probably more popular now than ever before.

Gifts of cash will no doubt be warmly welcomed by the recipient, but there are also potential advantages for the giver too, in the form of inheritance tax (IHT) relief.

All taxpayers are eligible to take advantage of an IHT gift allowance of £3000 per tax year which will immediately fall out of their estate for IHT purposes. Records should be kept of all gifts made, including those given for other occasions including birthdays and weddings.

If you wish to make gifts over and above the £3000 annual allowance then you would need to survive the gifts by seven years for the value to fall outside of your estate and not reduce your individual tax free allowance available to your estate on your death (currently £325,000).

For smaller cash gifts, these are covered by the Small Gifts Exemption, which allows as many gifts of under £250 to be made as you wish – they will all be exempt.

Furthermore, it is useful to know that an unlimited amount of income can be gifted – provided it is out of ‘excess income’ – as a means of preventing your estate from increasing in value. This is a useful allowance when giving money to children, grandchildren or other loved ones. However, to take advantage of this, it is essential that comprehensive records are kept to show that after paying your living expenses you are able to make the gift without compromising your lifestyle and it is genuinely made out of income and not capital. The allowance is in addition to the annual £3000 allowance. Additionally, with the rise in popularity of winter weddings, as well as making Christmas gifts, it is possible you may also be looking to give cash as a wedding present. In this situation, the level of tax relief will vary depending on the relationship between the person who gives the gift and the recipient. Each parent, including step parents, can give up to £5000 tax free. Grandparents can each give up to £2500, and other relatives and friends can each give up to £1000.

As we approach the season of giving and goodwill, it is good to know that you are able to gift widely with tax exemptions. However, if any clarity is needed with regard to your tax liabilities, then expert advice should always be taken.

Sintons
Sophie Robinson is a wills and probate specialist at Newcastle law firm Sintons. To speak to her about this or any other matter, contact Sophie on sophie.robinson@sintons.co.uk or 0191 226 7812
www.sintons.co.uk
@SintonsLaw

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