With the festive season upon us, the joy of giving is in the air. But did you know that some Christmas gifts might have inheritance tax implications?
While many gifts are tax-exempt, others could be subject to inheritance tax rules depending on their value and the recipient.
Understanding the link between gifts and inheritance tax is key, not just for your peace of mind now but also to ensure clarity and simplicity for your loved ones in the future.
In this guide, we’ll break down which gifts are exempt, how the rules apply to Christmas presents, and the steps that can be taken to avoid unexpected tax liabilities after passing.
Are Christmas gifts exempt from inheritance tax?
Christmas gifts can be exempt from inheritance tax, but whether they qualify depends on two key factors: the recipient of the gift and its monetary value.
Gifts and inheritance tax
A gift is anything that has a monetary value and is given from one party to another. This includes money, property and possessions. Throughout their lifetime, a person might give away countless gifts without a second thought. However, after their passing, it falls to their personal representatives to review these gifts and determine if any are subject to inheritance tax.
What gifts are exempt from inheritance tax?
Certain gifts are exempt from inheritance tax. This includes:
Gifts to spouses: Gifts exchanged between married couples or civil partners are entirely exempt from inheritance tax. This means husbands and wives can give each other unlimited gifts throughout their lifetime, provided they are both permanent residents of the UK.
Gifts to charity: Contributions made to UK-based charities are also exempt from inheritance tax, ensuring your generosity supports good causes without additional tax implications.
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 of up to £250 per person are entirely exempt from inheritance tax. There’s no limit to how many people you can give these small gifts to in a financial year, but each recipient must not receive another tax-exempt gift from you within the same period.
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 exceeding £3,000 are made and none of the above exemptions apply, the seven-year rule comes into play. Under this rule, the gift will be exempt from inheritance tax, but only if the person giving the gift survives for at least seven years afterwards.
If the gift-giver passes away within seven years of making a gift, inheritance tax may be payable. The amount due depends on how much time has passed since the gift was given.
Gifts made between three and seven years before death benefit from taper relief, which reduces the tax rate on a sliding scale. However, gifts made less than three years before death are taxed at the full rate of 40%.
Are you giving a gift this Christmas?
If you’re planning to give a gift this Christmas, it’s a good idea to keep a clear record of how much you’re giving and who the recipient is. This can be invaluable for your executor or administrator in the future when they handle the Probate process. If you’re unsure whether your gift might trigger an inheritance tax liability, we recommend consulting a tax expert for tailored advice.
Need help with the probate process? Let our experts guide you.
Managing the Probate process can be overwhelming, especially when it comes to identifying gifts made during the deceased’s lifetime and determining their inheritance tax implications. This time-consuming and complex task doesn’t have to fall solely on your shoulders.
If you’re an executor or administrator, our experienced Probate solicitors in Sunderland are here to take the stress off your plate. From identifying and calculating inheritance tax liabilities to managing the entire Probate process on your behalf, our dedicated specialists provide expert support at every stage.
Give us a call at 0191 567 7244 and our team will be happy to support you through the process. Prefer to reach out online? Simply email us at info@cooklaw.co.uk or complete our free online enquiry form.
