Giving gifts this Christmas could reduce inheritance tax bill
Graham Southorn shares inheritance tax tips
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More people are being dragged across the threshold for IHT and the amount of inheritance tax owed is getting bigger, which is a kick in the teeth for many families forced to pay the levy. Latest figures from HMRC show that IHT receipts for April 2022 to October 2022 hit £4.1billion, which is £0.5billion higher than in the same period a year earlier – an increase of 14 percent.
This season brings the challenge of finding the perfect gift for family and friends, which can be time-consuming, tiring and expensive.
A simple solution to avoiding this stress is choosing to give money as a Christmas present as this could help lower the IHT bill, as well as help keep within a budget, according to Becks Nunn, personal finance expert at Fidelity International.
There are many ways that people can pass on their wealth while they’re still around to see the enjoyment it brings.
It could be a good idea for people to keep a record of any gifts they make just in case it’s needed further down the line.
- The annual exemption for inheritance tax is £3,000 per year.
People can give away £3,000 per year (assets or cash), divided between one or more people, without IHT applying at all.
People can also carry forward one preceding year of annual exemption to gift £6,000 in one year.
- Small gifts up to £250 per year.
Individuals are allowed to give £250 per person per year to as many people as they like without IHT applying (as long as they haven’t benefitted from their annual exemption).
- To help pay for a wedding. Britons can gift between £1,000 to £5,000.
Loved ones can contribute to someone’s wedding, as long as they gift this amount before the wedding day and it actually takes place.
They can give £1,000 to anyone they know, £2,500 to a grandchild and £5,000 to a child.
- The seven-year rule for gifts
Britons can gift any amount of assets with no IHT to pay if seven years pass without them dying.
If they die within seven years, a reduced rate applies to any amount above the nil-rate band (40 percent within three years).
32 percent applies after three years; 25 percent after four years; 16 percent after five years and eight percent after six years.
Karen Jordaan, Head of UK, WorldRemit spoke exclusively with Express.co.uk about further benefits of gifting cash.
She said: “You can save money. We are all feeling the pinch at the moment – with recent research finding that 79 percent of Brits have seen the cost of living increase this year.
“Using a transfer service allows you to check the current exchange rate using a pricing calculator, recommending the best times to send.
“Plus, you can decide how much you want to send, helping you stay within budget and avoid forking out on an expensive gift that you’re not completely sure they will appreciate!”
Additionally, gifting money could be a great way to help loved ones who are struggling with rising bills.
She warned that Christmas gifts generate tonnes of waste every year from unwanted presents and wrapping.
A money transfer from family or friends could give a festive lift people may need to start the new year on the right path, or to put towards something they really, truly want.
Ms Jordaan said: “Sending money is an easy way to show you are thinking of someone.
“By using an app you can sit back, open up the app and swiftly send money in many forms.
“So no matter which corner of the world they are in, they can receive a thoughtful present from the UK.”
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