Christmas is a time for giving, but did you know that some gifts could be subject to Inheritance Tax (IHT) if not planned carefully? Understanding the rules around gifting can help you share joy with loved ones, without leaving a surprise inheritance tax bill.
What counts as a gift?
Gifts include money, household items like furniture or jewellery, property and even stocks and shares. Selling an asset for less than its market value can also count as a gift. However, anything you leave in your will is part of your estate, not a gift.
Who doesn’t pay IHT? 
Some gifts are entirely exempt from IHT. Gifts between UK based spouses or civil partners and gifts to charities or political parties, carry no tax liability. Beyond these, there are other allowances that enable you to gift tax free.
Using allowances to give tax free
- Annual exemption: Each tax year, you can give up to £3,000 free of IHT without affecting your estate. If you don’t use it all, you can carry it forward for one year.
- Small gifts: You can give multiple gifts of up to £250 per person per year, without using up your annual exemption.
- Weddings or civil partnerships: Tax free gifts can range from £5,000 for a child to £1,000 for other recipients, helping you celebrate special occasions without impacting your estate.
- Regular payments: Supporting a relative’s living costs, paying rent, or saving for a child’s future can also be exempt if payments are made from your regular income and are affordable after meeting your own living costs.
The 7 year rule is crucial to IHT planning. It states that gifts given more than seven years before death are usually exempt from IHT. Those made less than seven years before death may be taxed, with taper relief gradually reducing liability between three and seven years.
Our friendly and highly experienced Wills, Trust and Probate team are here to explain everything clearly. We’ll help you plan your gifting carefully, use your allowances fully and ensuring your generosity benefits the people you care about, without unexpected tax consequences.
This festive season make every gift count, whilst protecting your loved ones and your estate.
Get in touch with a member of our friendly and knowledgeable Wills, Trusts and Probate team today