Chartered Accountants
Do You Make Regular Cash Gifts To Your Family?
If you have given family members cash as a gift at Christmas this year or in previous years, did you record it? It could amount to a considerable sum over time and could be used to reduce your exposure to Inheritance Tax (IHT) on death.
When you make a gift to someone, in cash or kind, it is called a potentially exempt transfer (PET). If you die within 7 years of making the PET, it may be included in your estate again when it comes to calculating any liability to IHT.
There are a number of exemptions which allow you to make certain gifts that will not be treated as PET’s. These include any gift to one person that does not exceed £250 in value, gifts on marriage up to £5,000 by a parent (reduced to £1,000 by others), and any gifts up to a £3,000 limit per year.
One exemption that is often overlooked is normal expenditure out of income. There is no monetary limit to this exemption, merely the need for the donor to establish a pattern of gifts that do not affect their usual standard of living. For example, if you have surplus income each year of £10,000 after your usual outgoings and holidays and gift £2,000 to each of your 5 grandchildren each year on their birthday, then it may be possible to claim this exemption. Even if your surplus income varies each year, provided you establish a regular pattern of gifting that surplus, the exemption should be available. It is helpful to document such gifts and any intentions to make future similar gifts.
So maybe 2023 is the year to start regular savings plans or pension plans for your children or grandchildren or consider giving them cash to fund a Lifetime ISA to help with that elusive first house!
For further details or to discuss your individual situation, get in touch with our Private Client Taxperts via [email protected] or call your local office.
