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Are Christmas Gifts Exempt from Inheritance Tax?

Are Christmas Gifts Exempt from Inheritance Tax?

By In Blog, Probate On 09/12/2020


Christmas gifts can be exempt from inheritance tax. It all depends on who receives the gift and how much the gift is worth.

Gifts and inheritance tax

A gift is anything that has a monetary value and is given from party to another. This includes money, property and possessions. Someone might give away hundreds of gifts during their lifetime without thinking much of it. But after their death, their personal representatives must consider what gifts were given, and whether any of them are subject to inheritance tax.

What gifts are exempt from inheritance tax?

So, when might a gift result in an inheritance tax liability? Well, certain gifts are actually exempt from inheritance tax. This includes:

Gifts to spouses – gifts between married couples and civil partners are not subject to Inheritance Tax. So, husbands and wives can give each other as many gifts as they like during their lifetime, so long as they live permanently in the UK.

Gifts to charity – gifts to UK charities are also tax-exempt.

Gifts up to £3,000 – any one person can give away £3,000 worth of gifts each financial year without incurring inheritance tax liabilities. This is known as an annual exemption. Any unused annual exemption can be carried over to the next financial year. However, it can only be rolled-over once.

Gifts up to £250 – small gifts worth up to £250 per person are also exempt from inheritance tax. There is no limit on the number of small gifts that can be made during a financial year. However, the same person cannot be the recipient of another tax-exempt gift.

Other exempted gifts – in addition to the above, other gifts can be given away tax-free, although there are certain rules attached. Christmas gifts, for example, must come from the individual’s surplus income and must not impact their standard of living.

Gifts worth more than £3,000

If gifts worth more than £3,000 are made, and none of the above tax exemptions apply, then the seven year rule takes effect. This is when the gift is not subject to inheritance tax – but only if the gift-giver lives for seven years afterwards.

If the gift-giver dies before seven years is up, then inheritance tax will be due. The amount depends on the date of their death. Gifts made three to seven years before death are taxed on a sliding scale. This is known as taper relief. Gifts made less than three years before death are taxed at 40%.

Are you giving a gift this Christmas?

If you are giving a gift this Christmas, it is helpful to record exactly how much you are giving and to whom. This will help your executor or administrator in later years, when they are eventually tasked with the Probate process. If you are concerned that your gift could incur an inheritance tax liability, we recommend that you seek advice from a tax expert first.

Help for executors and administrators

If you are currently going through the Probate process, then there is help at hand. Identifying gifts made during the deceased’s lifetime – and calculating whether they are subject to inheritance tax – is a significant job. Unfortunately, it is not the time-consuming task that will be on your to-do list.

Due to the overwhelming amount of work involved, lots of personal representatives ask a Probate solicitor to act on their behalf. If you would like help from a Probate expert, contact our Sunderland solicitors today.

Call us on 0191 567 7244 and we’ll be happy to help you. 

If you would rather contact us online, email us at info@cooklaw.co.uk and one of our team will be in contact with you shortly.


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