03 November 2009
With just a short time left before the festivities begin, the annual search for the "perfect" Christmas present will already be well under way.
In the absence of socks, scented candles or a novelty CD – there's one present which is always more than welcome, and that's a gift of money.
While a modest donation towards a celebration lunch or much-wanted toy is unlikely to attract the interest of the tax man, Christmas can also be the time for families to consider much larger financial gifts.
However, to avoid paying inheritance tax, currently levied at 40% on any amount of money inherited over £325,000 (or £650,000 for couples if they both make use of their allowances) seeking professional advice makes for wise men and women.
David Wilkinson is an consultant at Thames Valley law firm B P Collins, which has a specialist team of lawyers who are experts in family estate planning. She says: "There are a number of tax-efficient ways for giving a gift of money, and it's important for families to explore the options and ensure they make the most of their allowances.
"Christmas can provide the ideal excuse to be generous, but no-one likes the idea of falling foul of inheritance tax rules and finding themselves being penalised for their gifts."
Current rules allow an individual to give a gift (or gifts) totalling up to £3,000 in any tax year without incurring a penalty, and this can either be as a lump sum to one person or divided up among several beneficiaries.
In a spirit of generosity, tax rules do allow for one year's allowance to be carried forward. Therefore, over 12 months, it would be possible for a husband and a wife to each give a gift of £6,000, providing the annual allowance hadn't previously been used.
Alternatively, smaller gifts of up to £250 per individual also fall below the inheritance tax radar and can be divided between any number of recipients. A typical case may be where grandparents wish to spread a larger sum between several grandchildren or friends, and there is no limit on how many individuals they may wish to donate the money to.
Christmas and New Year are also times when romance is in the air, and money-savvy parents will do well to note that if one of their offspring is getting married then they can give what is called a "gift in consideration of marriage" of up to £5,000.
"This is the perfect opportunity for a one-off gift," adds David. "Five thousand pounds is a very nice nest egg and it costs the parents absolutely nothing in terms of inheritance tax."
Grandparents or other family members can also take advantage of the forthcoming nuptials by making a monetary gift of their own, although in these cases the value can only be up to £2,500 if they want to avoid paying tax.
Of course, for a variety of reasons, some families may wish to gift larger sums of money and to ensure these are potentially free of inheritance tax, then the rules state that the person making the gift must survive for a further seven years. It would make sense then, for a couple wishing to give their child a gift of £100,000, to split this figure into two sums of £50,000 in each of their names.
If funds are given on a regular basis – for a minimum of four years – and are gifts of excess income rather than capital, then they can immediately fall out of your inheritance taxable estate. The gifts must leave sufficient income for the donor to maintain their normal lifestyle without eroding their capital.
"Providing you can show regular payments have been made from excess income, then these would fall outside the estate as far as inheritance tax is concerned," continues David.
"For example, a couple may have an income of £300,000 per year, yet require only £200,000 for their own living expenses. If they have regularly given a genuine gift of £100,000 a year without depleting their own living standards, then this would be exempt."
The complexity of inheritance tax laws prove how essential it is to seek expert advice and David stresses that the most sensible approach is one that includes all generations of a family.
"We like to take a family approach and believe that by meeting with everyone and understanding what they want to do, we can really help provide the best advice," she concludes. "There are plenty of options; we just want to help families ensure that the only strings attached to their presents this Christmas come with ribbons and bows."
If you would like to speak to one of B P Collins' private client experts, please call 01753 279059, complete the online enquiry form or email privateclient@bpcollins.co.uk. |
