It won’t be long before Christmas is upon us once more. You may already know your plans for the festive break, but have you had a think about what you’ll give your children this year – and your grandchildren if you have them?
Why not take advantage of your annual inheritance tax gift allowance? By doing this, you’re protecting your savings from being taxed when you die. Your current allowance – the sum you can give away each year, tax-free – is £3,000 in either cash or assets. How will you spend yours?
It’s never been more difficult for younger people to get a foothold on the property ladder and the majority who do manage are helped out by their parents. Why not really make their Christmas this year, with a little something to help them on their way?
Remember that this is a personal allowance: you and your spouse can therefore gift £6,000 a year together. If you don’t use the allowance in one tax year you can roll it forward to the following year – but you can only do this once and then your allowance is gone. Use it or lose it, is our advice.
So, if you didn’t gift any sizeable sums last year, you and your partner can make this Christmas an unforgettable one for your kids by gifting £12,000 between you.
If you’re not in a position to be writing cheques for thousands of pounds this yuletide, you can still take advantage of the inheritance tax gifting rules. Smaller sums of up to £250 can be made to as many people as you like within a tax year – but this sum cannot be combined with the £3,000 annual allowance and rolled into one lump sum gift.
Thinking about giving away more than a few thousand? Provided that you survive for seven years after making your gift, your children won’t have to pay IHT on any assets or any sum of money you give them. If you were to pass away before the seven-year period, a potential 40% tax liability could be payable. So there’s no time like the present to start writing cheques.
The 40% IHT rate tapers downwards as time passes, though. If you were to die within three years of making a gift (outside of your tax- free allowance, the full 40% is payable, but between three and four years the rate comes down to 32%, and then it reduces to 24% between four and five years, 16% between five and six years, and just 8% up to seven years.
Is your son or daughter getting married? You can give an additional £5,000 (per parent) towards the wedding if so, on top of your annual allowance of £3,000. Remember that this is an individual allowance, so you are your spouse can potentially gift £16,000 in one year when your offspring is getting married. What they use the money for is entirely up to them, of course! Grandparents can also make special gifts on the occasion of a wedding – up to £2,500 in cash or assets – and other generous family or friends can give away £1,000 to someone getting married.
You’ve worked hard to accrue your own savings and assets, so don’t let them become liable to crippling IHT bills when you’re gone. Like this article? Hit the buttons at the top and share this with your friends and family. Give us a call today on 01273 385 833 if you want some advice on the best way to protect your assets for the future – we can help with wills, family trusts, property trusts, probate, and even prepaid funeral plans.