With Christmas fast approaching and the whole family getting in the Christmas spirit, should we be worried about the gift we give attracting Inheritance Tax?

Not a thought that would cross many of our minds during the festive period, but should it?

The tax conscious may well be considering the gifts given, not only during the festive period but, throughout the year to ensure that the recipients won’t be liable to pay Inheritance Tax on such gifts.

So, let’s have a look at what gifts can be given and why some gifts may well attract Inheritance Tax.

Smaller gifts of up to £250 can be given to individuals without attracting any Inheritance Tax and so if your gifts fall into this category and you are not giving more than one gift (or multiple gifts) of more than £250 to any one individual then these will pass free from Inheritance Tax.

As a UK taxpayer you are also entitled to gift £3,000 each tax year without the gift attracting Inheritance Tax. This can be made as a one-off lump sum gift or smaller gifts totalling £3,000.

If you gift more than £3,000 in any tax year (whether as one gift or the total sum of smaller gifts is more than £3,000) then you must live for more than seven years after giving the gift or there may be Inheritance Tax to pay on those gifts. If you do not live for seven years following the gift then the value of the gift/s (above £3,000) will be included within your Estate Valuation and if this exceeds the Nil Rate Band then Inheritance Tax will be payable.

If you do not give away all, or indeed any, of your £3,000 allowance in a tax year then it can be rolled forward to the following tax year BUT this can only be done for the one previous tax year, these cannot be rolled on indefinitely.

Gifts given to family members as a wedding gift, or to help with a wedding, fall outside the rules above. A parent, or step-parent, can gift their child up to £5,000 as a wedding gift, a grandparent can gift up to £2,500 and other relatives can gift up to £1,000. This will not attract any Inheritance Tax regardless of whether the person gifting the money lives for seven years following the gift.

It is also worth noting that any gifts to a Registered Charity are free from tax, including Inheritance Tax.

You may find it useful to check out our article – Inheritance Tax: What can be done to reduce your exposure?

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on Info@TotalLegacyCare.co.uk or 01727 865 121