HM Insights

Why Christmas cash can be the gift that keeps on giving … inheritance tax benefits!

With Christmas only a week away, rather than brave the packed shops, you may be considering giving cash as a gift to loved ones instead. As well as the joy of giving, making over a Christmas cash gift, within certain limits, can also have the added advantage of reducing your inheritance tax (IHT) bill at the end of the day. Here is a brief look at smarter ways to gift this Christmas:

Christmas Money Cash Gifts Tax Inheritance
  • Annual exemption - The first £3000 worth of gifts given in any tax year (6 April – 5 April) are Inheritance Tax (IHT) exempt.
  • Spouses - Gifts between married couples and those in civil partnerships are exempt from IHT.
  • Small gifts - Cash gifts of up to £250 can be made as many times as you like, to as many people as you like, without having to pay IHT on them. However, you must bear in mind that you cannot gift someone £250 if you have already given them a gift using a different exemption – i.e. £3000 annual exemption.
  • Regular gifts from income – If a person has enough income coming in to maintain their normal lifestyle then they can make gifts from this regular income without being subject to IHT on that gift.
  • Help with living costs – You will not pay IHT on gifts to help with living costs if they are made to an ex-spouse, ex-civil partner; a relative who is dependent upon the person making the gift because of old age, disability or illness; or a child who is under 18 or in full time education. A child includes an adopted child or a step-child.
  • Political parties – There is no IHT on gifts made to political parties provided they have two members elected to the House of Commons or one member elected to the House of Commons who received at least 150,000 votes in the general election.
  • Charities – All gifts to charities, museums, universities or community amateur sports clubs are IHT exempt.
  • Wedding – Gifts in contemplation of marriage are exempt up to certain amounts: £5,000 when gifted to a child; £2,500 if it is given to a grandchild or great-grandchild; and £1,000 to anyone else.
  • Direct gift - Any value of gift can be made over directly (without retaining a benefit), IHT free. If the person giving the gift survives for seven years after the gift is made the gift falls out of their estate. Taper relief is available for those who die between 3 years and 7 years of making a large gift over £325,000.
  • Gift to Trust -If you would still like to retain an element of control in making over a gift you could always set up a family trust and make an IHT free gift up to £325,000.

We wish you a Merry Giftmas!

Get in touch

It is always wise to take advice if you would like to use gifting as part of an estate planning process to make sure that the gift is effective from an HMRC point of view.

To find out more about our practical tailored advice on inheritance tax, please get in touch with our team.