It is Christmas – the time of giving and of guilt. With so many good causes and people in need, how should we use the tax breaks available to make what we have go further when giving to family, friends and charity, not just in our lifetimes but later too? Wills and Trust specialist Nia Jones looks at how to make the most of gifts.
“The doorbell went and I found two cheerful young people, brightly dressed in the colours of a fairly well-known animal charity. The previous evening a representative of an aid charity, working currently in the Philippines and in many places around the world, had phoned and had easily persuaded me to increase my monthly donation to them. That lunchtime a charity providing relief to the homeless, to which I also give on a monthly basis, had tried to ring me. I was still feeling vaguely guilty about missing that phone call. Now the cheerful young people were the third set of charity fundraisers to ring my doorbell in a few days.
I had spent the chilly day dividing my time between paperwork and fuelling roofers and plumbers with cups of hot tea, running up and down stairs. It was one run down the stairs too many. Out came my inner Scrooge. I didn’t give my latest set of callers a chance to speak. Knowing full well what they were looking for, I positively spluttered with indignation. Then I finally paused. ‘Don’t you like animals?’ they asked. Oh bright young people! My usual politeness failed me and I went over the top. ‘No,’ I said, and tried to explain compassion fatigue. They walked away down the pathway, clearly amused.”
If you are looking to make a gift this Christmas, our tips below may help it go further than you originally thought.
In any one tax year 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. If you are a grandparent with money to spare, why not take the nice simple step of giving each grandchild more than you had been intending for Christmas?
£3,000 annual exemption
In any one tax year you can give away a total of £3,000 to beneficiaries who are not exempt from inheritance tax (and any amount to those who are entirely exempt) without inheritance tax consequences. If you want to reduce the amount of inheritance tax due on your death and have assets to spare, don’t forget this obvious opportunity to bring pleasure now and perhaps save tax later. If you failed to use your annual exemption last tax year, you can still use it up until 5 April 2014.
Gifts from income
Many people fail to realise that if they have surplus income, they 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 and not capital.
Gifts to charity
The Gift Aid scheme is widely known, but I find not everyone realises that all gifts to charity are exempt from inheritance tax whether made during their lifetime or on their death through their will.
Leave more than 10% to charity in your will and gain a reduction on inheritance tax to non-exempt beneficiaries
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 fairly recently introduced provision should take advice on how the gifts to charity should be worded in their will.
Make a will
Remember that while you are free to give or not give while you live, that freedom will be lost once you die. If you fail to make a will, the rules of intestacy will kick in. For some, this will be all they want, but for others the chance to leave to family members not covered by those rules and to leave to unmarried partners, 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.
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.