Britons thinking of gifting money to their relatives at Christmas time are being urged to consider the implications of Inheritance Tax (IHT).
Christmas is often described as ‘a time for giving’, and many families could be thinking of handing down small – or large – sums of money to their children, grandchildren or otherwise as part of this year’s festivities.
However, those thinking of doing so need to be aware of whether such gifts might incur Inheritance Tax.
In the UK, individuals are entitled to a number of tax-free allowances when it comes to gifting – some of which are better-known than others.
Firstly, Britons can gift a sum of up to £3,000 each year completely tax-free, which can be split equally between two or more people.
However, this allowance can be carried forward for one year if it has not been used – meaning that individuals who did not gift any money last year can give away up to £6,000 tax-free in 2017/18.
Furthermore, individuals can make tax-free wedding gifts of up to £5,000 if a child or grandchild is getting married. Wedding gifts can also be passed on free of IHT to relatives or friends, but the tax-free threshold may vary.
Most other gifts which do not take advantage of the above exemptions will be treated as ‘potentially exempt transfers’. This effectively means that the individual passing on the gift will need to survive for seven years in order for the gift to be IHT-free.
In the UK, IHT is currently incurred at a rate of 40 per cent of the total value of any estate worth £325,000 or more at the point of death. Gifts which fall outside of the above ‘seven-year rule’ will be included in calculations regarding the total value of an estate.