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With Christmas fast approaching, you may be thinking about making monetary or other gifts from your estate. However, before making any gifts, it is worth considering the rules that your generosity of spirit might be governed by and how it might impact your estate from a planning and inheritance tax perspective.

Annual Allowance

As the new tax year begins, every individual can take advantage of the annual gifting allowance of £3,000 which permits you to give money or gifts from your estate to one person, or split amongst many.

Don’t worry if you don’t make full use of your allowance, any unused portion can be rolled over into the new tax year – but only for one year. This means that you could add any unused allowance from last year to this year’s allowance, so slightly larger gifts could be given.

Small Gifts

You may give as many gifts up to the value of £250 per person, per tax year, as you wish without affecting your estate or annual gifting allowance. But, keep in mind that this only holds true if you have not made any gifts to any of the recipients under any of the other allowances mentioned here.

If you are feeling especially moved by the Christmas spirit, don’t worry! Christmas gifts from your regular income are exempt from inheritance tax.

Wedding Gifts

If you know that a loved one will be finding a ring under the Christmas tree, then you may want to begin thinking about wedding presents. Without impacting your estate, you may give the following gift allowances:

Presents to your children: £5,000

Presents to your grandchildren: £2,500

Presents to others: £1,000

You are permitted to combine a wedding gift allowance with any other allowance, except from the small gift allowance. So, if for instance you would like to make a contribution to a grandchild’s wedding, you may add this to your annual allowance of £3,000.

Regular Payments Out of Income

If you are taking care of someone financially by making regular payments to support them, then there is no limit on the tax free amount. This is often referred to as gifting out of surplus income.

To qualify for gifting out of surplus income, you must ensure that the payments are made from your income and not from your savings. Nor should the payments negatively impact your standard of living, and you must establish an accurate and clear pattern of payments.

Gift With a Reservation

If you give something away but still benefit from it, then the value of this gift will still contribute to the value of your estate. An example would be transferring the ownership of your holiday home to someone else, but still having the use of it.

7 Year Rule

Many have heard of the 7 Year Rule but don’t necessarily know how to use it to their advantage. For clarity, when gifting money in excess of your annual allowance, no tax is due if you live for longer than 7 years after the gift has been made.

Should you die within 7 years of making the gift, then there will be Inheritance Tax to pay on it. The amount of tax due will depend on when the gift was made as a sliding scale called taper relief is applied.

Taper relief only applies if the total value of gifts made during the 7 preceding years exceeds the £325,000 tax-free threshold.

So, Who is Exempt from Inheritance Tax?

Any gifts made to a spouse or civil partner are tax free, provided that they reside in the UK and are legally married or in a civil partnership with you.

Charities are also exempt from inheritance tax, so be as generous as you wish! (Red Nose Day, Christmas Jumper Day, or any other cause close to your heart)

How Inheritance Tax on a Gift is Paid

Any Inheritance Tax due on gifts is usually paid by the estate, unless you have exceeded the £325,000 allowance in the 7 years prior to your death. Once the limit has been exceeded, anyone who has received a gift during those 7 years will have to pay Inheritance Tax on their gift. Curwens has an experienced team of Private Client solicitors, who can assist you with effective tax planning and advise and discuss how best to distribute your assets with you. Whether you are gifting, estate planning, or revising your Will, we can help you to make use of the tax allowances available to you. To discuss your needs further, please email This email address is being protected from spambots. You need JavaScript enabled to view it. or contact out private client team on 0808 164 8443.

by Alexandra Ridley
Private Client Solicitor, Curwens LLP