The festive season is nearly upon us, along with the annual challenge of finding suitable presents for loved ones. If you are considering giving tax-efficient gifts at Christmas, it’s vital to know the rules around gifting. There are various ways to give money to your family including tax-free ISAs.
Cash lump sums
It is common for grandparents and parents to provide large cash gifts for Christmas to help reduce future inheritance tax (IHT) liabilities. You can give up to £3,000 a year to children and grandchildren, and this allowance can be carried over to the next year. There is also a ‘small gift allowance’, where you can give £250 per person as many times as you like. This is only applicable as long as another allowance hasn’t been used on the same person.
If you give cash gifts that are higher than the £3,000 annual exemption, the 7-year rule will apply. If you passed away within 7 years, then inheritance tax (IHT) would apply, depending on the date of the gift. If you died, for example, within 3 years of giving the cash gift, IHT would be at the full rate of 40%. However, if you died between 3 and 7 years after giving the cash gift, then the taper relief scale would apply. For more information, speak to our team.
Paying for a wedding
In addition to the annual gift allowance of £3,000, there’s an extra exemption available for those wishing to pay towards their child or grandchild’s wedding. You can gift up to £5,000 for a child or £2,500 to a grandchild to help with wedding costs. You can also gift £1,000 to any other person to help them pay towards their wedding. These gifts apply to both marriages and civil partnerships and are also exempt from inheritance tax (IHT).
Start a savings pot
One tax-efficient way to give a financial gift at Christmas is to open a type of savings account. Common examples include premium bonds, Junior ISAs and a child’s pension. These savings options provide children with a useful nest egg for when they are older.
Only a parent or legal guardian can open a Junior ISA on behalf of their child, although anyone can make contributions. The child can gain control of their account when they reach 16 years, but they need to be 18 before they can make withdrawals. The annual savings limit for Junior ISAs this financial year is £9,000, and there are two types: a Cash ISA or Stocks and shares ISA.
A parent or legal guardian can also only open a child’s pension, although anyone can make contributions. We would recommend seeking advice from our financial planning team with regards to checking the amount of tax relief available.
Business gift exemptions
If you are a business owner, you might be considering giving your staff gifts this Christmas. HMRC will treat any cash gifts as taxable earnings. Non-cash gift vouchers that can only be exchanged for goods and services are also liable for tax. However, gifts up to £50 might be considered a ‘trivial benefit’ and be eligible for exemption from both income tax and national insurance. The gift must not be cash or a voucher or connected to a salary sacrifice or bonus.
When it comes to your Christmas party, there is a tax exemption but, to be eligible, certain conditions will apply. Your party needs to be an annual event, open to all employees, and the cost per head must not exceed £150 (including VAT).
Wealth Managers, Nottingham
Are you thinking of giving a financial gift to a family member this year? What counts as a gift? Put simply, anything that could be considered an asset with a market value. Taxable gifts include money, valuable gifts such as antiques or jewellery, land or property, as well as stocks and shares.
In certain instances, capital gains tax (CGT) might apply, although there are several exemptions. CGT does not apply to partners or spouses, but it could apply to gifts given to family members where there has been a significant gain.
For more information on gifting and tax-efficient allowances, speak to our financial planners. We have the expertise to help you manage your wealth, so you can minimise inheritance tax (IHT) and provide your family with a suitable legacy.
Are you considering giving a tax-efficient gift this Christmas? Get in touch to speak to our financial planners for advice.
Sources:
https://www.gov.uk/inheritance-tax/gifts
https://www.sjp.co.uk/news/making-tax-smart-gifts-this-christmas2022
https://www.hawsons.co.uk/christmas-tax-guide/
