It’s that time of the year again so let's talk gifting allowances. For those of you who are feeling generous during the festive season, or know someone with a hefty Christmas Wish List, then the amount gifted over the Christmas period can have an impact on the inheritance tax allowances available to your estate.
For those of you familiar with the Eartha Kitt song “Santa Baby” (or maybe the Kylie Minogue cover), the list of items included is eyewatering. So what do all these gifts mean for Santa’s inheritance tax allowances (assuming he is UK domiciled at the date of his eventual death, of course).
The most relevant allowance (for most people) is the £250 gift exemption. Any gifts of £250 or less to a person in a tax year can be treated as exempt for IHT purposes and doesn't reduce your estates available IHT allowance. To qualify for the exemption no more than £250 can be gifted to an individual in a tax year and it is lost completely if the total amount gifted to that person (even if gifted at different times) is more than £250.
That may be enough for a Tiffany tree decoration but somehow I don't think it will cover the sable jacket.
If you are feeling a bit more generous then you can gift up to £3,000 per year without this reducing your estates available IHT allowance. If this allowance hasn't been used in a previous year then it can be brought forward, making for gifts of up to £6,000 in a tax year.
Given Santa’s tendency to make so many gifts this may cover some of the larger items (that aren’t covered by the £250 exemption) but it still wouldn’t be enough for that Light Blue 1954 Convertible.
If you are lucky enough to have surplus income in any year then you can gift all surplus income away, without the need to survive this by any length of time and without reducing your inheritance tax allowance. You will however have to show that you didn’t have to dip into capital in order to achieve this surplus.*
Santa’s organisation seems like it may be more of a charity than a profitable business (even if he does get royalties from all the impersonators) so it may be unlikely that his surplus income would stretch very far.
So what about that yacht? Or the platinum mine? Well those are almost certainly outside the realms of income for all but Mr Musk. If you are feeling generous, and do make gifts outside of your available allowances and exemptions, then you will need to survive these by 7 years for them to fall out of counting for inheritance tax purposes. If not then they will use up some (or potentially all) of your available IHT allowance.
That being said, the best form of tax planning is to spend your money (or so the old adage goes) so give as generously as you can this Christmas and have a wonderful time.
Have a Merry Christmas from all of us at Allan Janes.
*this allowance is carefully monitored by HMRC so please take professional advice before making gifts of this nature.