by Simon Northcott, Financial Planner

The Gifting Season

With Christmas only days away and the end of 2024 fast approaching the gifting season is truly upon us.  Whether a nicely wrapped present or helping those less fortunate, gifting is at the forefront of minds.  It might therefore be a good time to reflect on the rules that apply when making gifts. 

Gifts can take various forms, including cash, personal belongings, property, land, and stocks or shares. To help mitigate potential tax implications, several exemptions are available, which are outlined below:

Annual Exemption

Anyone can give away up to £3,000 worth of gifts each tax year without the value being added to the value of your estate. The gift can be up to £3,000 to one person or split between several people. You can carry over any unused allowance to the next tax year, but only for one tax year.  

Small Gifts Exemption 

You can give as many gifts of up to £250 per person as you want each tax year, if you have not used another allowance on the same person. 

Wedding Gifts 

Gifts can be made tax-free in connection with weddings or civil partnerships each tax year. The limits vary as shown below. 

• £5,000 to a child, 
• £2,500 to a grandchild or great-grandchild, and 
• £1,000 to any other person 
• Gifts to Charity 

Donations to registered charities are exempt from Inheritance Tax (IHT) and can also provide you with Income Tax relief. 

Regular Gifts 

There is no limit to how much you can give tax free if you can afford the payments from your regular monthly income. This process is known as ‘normal expenditure out of income’.  

Are there any exemptions I should worry about?

The annual exemptions are a great way to gift smaller amounts to loved ones or charities. When gifting larger amounts, it is important to understand the tax implications on those making and receiving the gift. 

Gifts to Spouses and Civil Partners 

You can make unlimited gifts to your spouse or civil partner without any Inheritance Tax (IHT) implications, regardless of the amount. 

Inheritance Tax (IHT) 

Any gifts you make more than the annual exemptions may be added to the value of your estate for IHT purposes if you pass away within seven years of making the gift. 

Potentially Exempt Transfers (PETs) 

Gifts above the annual exemption are considered PETs. If you survive for seven years after making a gift, it will not be subject to IHT. However, if you pass away within the seven years, the gift’s value will be included in your estate. The amount of the gift which is added to your estate reduces after the third year on a sliding scale. Many people making large gifts choose to gift up to their IHT nil rate band of £325,000 as even if death occurs within seven years, the value of the gift can use the nil rate band and not be subject to IHT on death. 

Gifts to charities 

As previously outlined, donations to registered charities are exempt from IHT. In addition to this, if you leave 10% or more of your estate to charity, the rate of IHT paid on your remaining estate reduces from 40% to 36%. 

Tax Implication for Recipients

Generally, the recipient of the gift does not pay tax on the gift itself. However, if the gifted asset generates income (like interest or dividends), the recipient will be liable for the tax produced. 

As with any big financial decision, we recommend that you seek advice when gifting money. There are many factors to consider, such as the timing of the gifts, making use of available allowances, whether the person receiving the gift should have access to the money immediately or whether you wish to place the gift into trust.  

We have helped our clients for many years with these decisions and we would be happy to discuss your plans with you.