Christmas is often a time to give – to friends, to family, and to charities/good causes. However, a recent poll by Big Give found that 25% of Britons are less likely to give to charity this year due to the cost-of-living crisis. In today’s climate, how can you make what you give go further, both today and in the future?
In this article, private client solicitor Nia Jones explains how we can use the available tax breaks to give to family, friends and charity, both in our lifetimes and afterwards. Here are some suggestions – some for Christmas, some for the New Year:
- Small gifts: You can give, without there being inheritance tax drawbacks, £250 each to any number of individuals providing you don’t give any more than £250 to any one individual in any one tax year. If you are a grandparent with money to spare, why not give each grandchild more than you had been intending for Christmas?
- The £3,000 annual exemption: In any one tax year you can give away a total of £3,000 to individuals who are not exempt from inheritance tax without incurring inheritance tax consequences. If you want to reduce the amount of inheritance tax due on your death and have assets to spare, don’t overlook this opportunity to bring pleasure now and perhaps save tax later. If you failed to use your annual exemption in the last tax year, you can still use it up until 5th April 2024.
- Gifts from income: If you have surplus income, you can set up a regular pattern of giving from that surplus to, for example, children or grandchildren without there being any inheritance tax consequences. It does need to be done systematically – perhaps on a monthly basis to make it clear that the gifts are from income, not capital.
- Gifts to charity: The Gift Aid scheme is widely known but not everyone realises that all gifts to charity are exempt from inheritance tax whether made during lifetime or on death through a will.
- The reduction in inheritance tax on gifts to non-exempt beneficiaries when you leave more than 10% to charity in your will: If you want to leave to charity in your will, do remember that, if you leave more than a certain percentage in your will to charity, the beneficiaries in your will who are not exempt from inheritance tax may well benefit from a reduced rate of tax (36% instead of 40%). What constitutes 10% is complex and anyone wanting to utilise this relatively recently introduced provision should take advice on how the gifts to charity should be worded in their will.
- Happily cohabiting? Consider matrimony or civil partnership: No one should ever do anything primarily for tax reasons but the reality is that it can be a very good idea to marry your long-term partner, as spouses and civil partners inherit each other’s estates, free of inheritance tax. Crucially, the fact that everything can pass tax-free to the survivor prevents hardship on the first death. On the second death there may be available the nil rate tax band of the first to die, the nil rate band of the second to die and possibly the residence nil rate band which, where there are children, can allow a family home worth up to £1m to pass to the next generation, free of inheritance tax.
- Make a will: Remember that, while you are free to give or not to give while you live, that freedom will be gone once you die. If you fail to make a will, the rules of intestacy will apply. For some this will achieve what they would have wanted anyway, but for others the chance to leave to unmarried partners and family members not covered by those rules, friends and charity will be lost for good. If you haven’t got round to making a will, make it your New Year’s resolution to do this.
If you have questions about how you can use tax breaks to make a gift more beneficial, please contact Nia Jones.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.