Wills and Estate Planning: Six Top Tax Break Tips for Giving at Christmas

It’s Christmas, a time to give – to friends, family and to the numerous good causes that rightly clamour for our attention. There is so much need, this year seemingly more than ever. In this timely article, Nia Jones explains how can we use the straightforward tax breaks available to give to family, friends and charity, not just in our lifetimes but later, making what we have go further.

Here are six top tips:

Small gifts: 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 give each grandchild more than you had planned for Christmas?

The £3,000 annual exemption: Again, 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 2017.

Gifts from income: Many are not aware 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 or quarterly 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 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 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 to give while you live, to direct what happens after you die you must make a will. If you fail to do this, 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 so.