If you’re thinking about presents you’d like to put under the tree for your children or grandchildren, cash may be the perfect solution.
Not only is it easy to gift money to your loved ones, but you could also use the opportunity to reduce a future Inheritance Tax (IHT) bill.
Read on to find out how to give a tax-efficient gift and pass more wealth to those you love this Christmas.
Inheritance Tax could see some of your estate taxed at 40%
The standard rate of IHT is 40%, charged on assets above your tax-free threshold. This is called the “nil-rate band”. In the 2024/25 tax year, the nil-rate band is £325,000.
If you pass your main residence to your children or grandchildren, you may also benefit from the residence nil-rate band – £175,000 in 2024/25.
Combined, these thresholds mean you could pass up to £500,000 to your beneficiaries tax-free.
If you’re married or in a civil partnership, you can also pass on any unused sum to your partner on your death. So, married couples may be able to pass on up to £1 million, free of IHT.
In the 2024 Autumn Budget, chancellor Rachel Reeves announced that these tax-free thresholds are frozen until 2030.
Gifting rules can help you to reduce the size of your estate
The following gifting rules are just some of the ways you could gift wealth tax-free this Christmas.
Tax-free gift exemptions
Each year you have a tax-free gifting exemption, allowing you to give money away and reduce the value of your estate.
The annual exemption is £3,000 in 2024/25. You can also carry forward one years’ worth of unused gifting allowance.
You can also make unlimited £250 gifts to anyone you’d like, though this can’t be the same person who received your £3,000 exempt amount.
Couples can team up and double the tax-free amount
These tax-free gifting allowances are available to every individual. So, if you have a spouse, you can team up and double the amount you’re able to gift.
This means that, if neither of you have used the £3,000 allowance already, you and your spouse could gift up to £6,000 to your family tax-free this Christmas. And if neither of you used last year’s allowance, you could increase this to £12,000.
Gift more using potentially exempt transfer rules
While the above allowances let you transfer your wealth tax-free within certain limits, you can, of course, gift as much as you like during your lifetime.
Additional gifts may become liable to IHT at 40%, but only if you survive for less than seven years after making the gift. If you die within seven years, your IHT rate will depend on taper relief.
These gifts are known as “potentially exempt transfers” (PETs).
The rate of IHT changes depending on how soon you die after making your gift:
Years between gift and death | Tax rate due |
3 to 4 years | 32% |
4 to 5 years | 24% |
5 to 6 years | 16% |
6 to 7 years | 8% |
7 or more | 0% |
Taper relief only applies to amounts that exceed your nil-rate band.
Estate planning isn’t just for Christmas
These gifting rules are only a small part of the potential strategies you could use to efficiently pass your wealth to family and loved ones.
An experienced financial planner can help you create an intergenerational wealth plan, allowing you to gift your wealth in the most tax-efficient way throughout your lifetime and beyond.
Get in touch
If you’d like to find suitable strategies for gifting wealth to your family, reducing a potential IHT bill and ensuring those you love benefit from all your hard work, please get in touch.
Email info.wp@titanwh.com or call us on 0800 048 0150.
Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
The Financial Conduct Authority does not regulate estate planning or tax planning.
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