Our second article in the series on preparing for the tax year end, by Jack Bennett discusses further steps you should take to maximise your tax allowances and ensure you are ready for the tax year-end.
Firstly, in relation to Inheritance Tax, there are some very worthwhile allowances that permit you to pass on small elements of your estate to family and friends over a period of several years.
For context, the default situation is that any gifts made personally would remain within an individual’s estate for 7 years for inheritance tax purposes, attracting a potential tax liability of 40%.
So, by using these allowances you can ensure that these gifts are not included in your estate and can be passed to the younger generation or other family members.
Annual exemptionThis allows you to gift up to £3,000 per tax year. This can be as a one off to one single individual or smaller payments to various people. However, this cannot be used to gift to a charity – it must be used for individuals.
You can also carry forward this allowance for up to one year, meaning that if you didn’t use last year’s allowance you could gift £6,000 in this tax year for individuals or £12,000 for couples.
Gifts for Weddings/Civil PartnershipsInheritance tax relief is also provided for in gifts for weddings or single partnerships allowing a tax-free gift of:
- £5,000 to a child
- £2,500 to a grandchild or great grandchild
- £1,000 to any other person.
You can also combine the £5,000 gift to the annual exemption above, so in the event your child was getting married, you could gift a total of £8,000 in the current tax year.
Small Gifts AllowanceThe final inheritance tax allowance to take note of is the small gifts allowance which permits you to give as many gifts to an individual as you’d like up to the value of £250.
This can only be used so long as you haven’t used any of your allowances to gift to this person previously in the tax year.
So, for example, if you’d already used your £3,000 tax free allowance above to give to your daughter, she would not be eligible for any gifts under the small gifts allowance.
Tax affairs are complicated and we would always advise you to speak with your advisers before making any changes. For more information on how we can help you and your business please contact us at firstname.lastname@example.org or call 02476673160.
Please note: This article is provided for information only and was correct as at time of writing (09/03/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.