How will IHT affect Christmas cash gifts?

6:45 a.m. December 14, 2021

As Christmas approaches, I would like to donate money to my six grandchildren. I was thinking of giving them £ 1,000 each but my daughter says I can only give £ 500 as there is an annual limit of £ 3,000 for gifts. Is it correct?

Matthew Beck is a Certified Financial Planner at Smith & Pinching
– Credit: Smith & Pinching

Matthieu Beck from Smith and pinch respond :

The answer to this question will depend on your financial situation. The limit your daughter referred to is the Inheritance Tax (IHT) limit, so if your total estate is less than the Inheritance Tax Exemptions (IHT) you have, you don’t have need to restrict what you give for no reason other than what you can afford.

If the IHT is a potential problem, there is a range of gift allowances that are automatically exempt from the IHT. These include a total gift allowance of £ 3,000 per year, plus any number of gifts of £ 250 or less to people who have not received other gifts from you during the year. There are also exemptions for wedding gifts and gifts to charities and political parties. If you regularly have excess income, you may also benefit from an additional exemption, provided you meet the required conditions.

The amount of IHT exemption available to you upon your death, other than your donation allowances, will depend on a number of factors such as the size of your estate, whether or not you are married or in a civil partnership, and whether you own your home and plan to leave it to your children or grandchildren.

Whatever your potential future IHT liability, there’s nothing stopping you from making your planned giving. Any donations you make in the last seven years of your life can be treated in whole or in part as always in your estate (and if they are lifelong transfers, potentially up to 14 years before your death. ) and taxed accordingly, but that shouldn’t necessarily exclude what you want to give now.

I believe you would benefit from independent financial advice from a firm of licensed financial planners to make sure you understand any potential IHT liabilities you may incur and to enable you to plan your giving now and in the future. We work closely with families to help them pass their wealth from generation to generation in a tax-efficient manner, ensuring that those who give remain financially secure throughout their lives.

The opinions expressed in this article do not constitute advice.

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