Christmas is coming and whilst we all want to make gifts to our family members, it’s important to make sure that you can afford them, whilst also ensuring it’s tax efficient to do so.
If you do decide to gift money, think about the best way to give it – you can transfer it straight to a current account, but it might be better to transfer it to a savings account so it’s not quite so easily accessible.
If you are going to gift you should understand the rules relating to Inheritance tax (IHT); the basic premise of which is that the Government is keen to discourage individuals from gifting their money before they die, in the hope that some extra tax might need to be paid following death.
IHT is paid if the value of an estate is more than £325,000. This means that your beneficiaries only receive their ‘share’ once IHT has been paid. The timing of lifetime monetary gifting is important. All financial gifts, given more than 7 years before you die, are exempt from IHT. However, if you die less than 7 years later then IHT may be due on the gift and will need to be paid by the recipient of the gift. If however you die between 3 and 7 years from making the gift, IHT on the amounts gifted will be liable for tapered relief. This means that the amount of IHT due on those gifts is reduced.
How much IHT is due to be paid depends on the size of the gift. This is where it becomes a little complicated. If the value of the gift is over the IHT threshold, then IHT will be due on the full amount. If the gift is less than this, then its value is added to the total estate and IHT is payable on the amount which goes over the threshold. An example of this would be a gift of £75,000 with an estate worth £300,000. IHT would only be levied on the £50,000 above the IHT threshold and would be paid from the estate.
Once you have gained a good understanding of what you can afford to give, who your recipients will be, and why you want to gift the money, then you can consider what you can and can’t do, but always remember whilst it’s kind and generally appreciated if you gift generously, you should only give what you feel you can afford.
For more information contact the Thompson Smith and Puxon (TSP) Wills and Estates team. They can advise on Wills, LPAs, Lifetime Planning and the Administration of Estates (Probate). The team can be contacted on 01206 574431 or by email at firstname.lastname@example.org.