Christmas is the time for giving!

18th December 2018 | Posted in: Allowances, Capital gains tax, Company News, Inheritance tax, Planning

Anyone thinking about making gifts at Christmas should take advantage of the various Inheritance Tax (IHT) exemptions and reliefs available to them. However, please note that certain gifts may also have capital gains tax (CGT) implications.

The IHT Annual exemption – Use if or lose it!

Although not particularly generous at £3,000 per donor per annum, if this annual IHT exemption is not used by 5 April, it can be lost. It is possible to carry forward any unused annual exemption allowance for one year. This means that if the annual allowance for 2017/18 was not used, an individual may make gifts of up to £6,000 in 2018/19.

Where any gifts exceed the annual exemption there may still be no IHT to pay if the donor survives for 7 years after making the gifts  or the gifts falls within the £325,000 nil rate band for IHT.

Gifts out of income are not taken into account for IHT

A more generous IHT exemption applies where the donor can prove that he/she is not transferring capital but is making gifts out of their income.

There are detailed conditions for this exemption to apply requiring records to be kept of income and expenditure to prove that there is sufficient surplus income each year to make regular gifts. We can of course advise you regarding the what records are required to satisfy HMRC.

Certain gifts can have Capital Gains Tax (CGT) consequences

Although there will be no CGT on gifts of cash, there may be CGT to pay where the gift is made up of shares or other assets. This is because the transaction will generally be deemed to take place at market value between connected persons, even though no money changes hands.

The amount of the gain would normally be determined by comparing the market value at the date of the gift with the original cost of the asset. Where the amount of this gain is within the annual CGT allowance (currently £11,700) there will be no CGT payable.

Where the gift comprises shares in a trading company or other business assets it may be possible for donor and recipient to sign an election to hold over the gain so that no CGT is payable by the donor at the time of the gift. The effect of such an election is that the recipient of the gift will take over the donor’s original cost of the asset for any subsequent disposal.

Please get in touch with us if you are considering making gifts of cash, shares or other assets so that we can advise you fully regarding all of the tax implications.

If you feel we could help you and would like to discuss any of the above, please contact Kenny McNeill CTA on 0131 317 7377 or email to kenny.mcneill@jsca.co.uk.
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