December is a good opportunity to make sure you’ve used all of your available tax allowances for the year. Peter Webb, our Head of Tax Advisory, shares some suggestions for how to ensure your festive gifts tick the tax-efficient box.
Making financial gifts may not be top of everyone’s list, but this time of year does afford some opportunity for financial planning. Every year, a range of tax allowances give you the option to make financial gifts without attracting tax. And some of them can even help you reduce your own tax bill in the future.
Using your allowances
For many, Inheritance Tax (IHT) is likely to be the most significant tax charge of all, so a common incentive when making a financial gift is to help reduce a future IHT bill. One of the simplest things you can do is to make gifts to your intended beneficiaries during your lifetime, using your annual allowances. Gifts which don’t attract a tax charge include a payment of up to £250 to anyone, once a year. You also have a personal IHT allowance each year of £3,000, which can be carried forward into the next tax year if unused. Any gifts above these limits are likely to be exempt from IHT, as long as you survive for seven years from making the gift and don’t retain a benefit for yourself in the gift. There are other exemptions available, for example if you choose to give a financial gift on marriage – just in case you are attending a winter wedding!
For a more generous gift, perhaps a house or a share portfolio, you might face Capital Gains Tax (CGT). It’s certainly worth talking to a tax adviser first to make sure of your position. One exception is if you give a car; this generous gift won’t incur CGT (just in case my wife is reading this and has been struggling to think of what to buy me!). Joking aside the takeaway here is not to forget that if you’re making any significant financial gift, you may need to think about whether or not it will attract CGT.
Want to find out more about IHT?
Download our Inheritance Tax Guide
Financial gifts for children
Although your child, grandchild, niece or nephew might to prefer to receive the latest games console, a more prudent approach could be to set up or contribute to a Junior ISA instead. They might not thank you on Christmas (or their birthday) morning but certainly will in later life, when some judicious saving on your part might give them a source of funds for travelling or a house deposit.
Each year you can fund up to £9,000 into a Junior ISA for each child; the only caveat is that you do need to be a UK resident to pay into one. If you are non-UK tax resident you could consider setting up investments whilst overseas, which can be a great family tax planning opportunity.
If you are considering making a financial gift our team of experts can help ensure any transfers take place in a way which avoids any unnecessary tax charges.