Christmas gifting get to grips with inheritance tax planning

1. Christmas Gifting: Get to Grips
with Inheritance Tax Planning

2. The Christmas season ushers in the end of
another year, and for many people it can be a
stark reminder that time is quickly moving
forward.
Christmas is an opportunity to enjoy giving
special gifts. These are sometimes treasured
and valuable possessions, such as jewellery or
paintings, which some people choose to give to
their loved ones. It can also be money which is
surplus to their income needs, because they
want to enjoy seeing their family members
benefit whilst they are still alive.
Giving at Christmas may be a very private affair.
However, giving away money or valuable items
is something which Her Majesty’s Revenue and
Customs (HMRC) has a view on, when it affects
if Inheritance Tax may become payable.
Inheritance Tax (sometimes referred to as ‘death
tax’) is the final tax bill which has to be paid by
those who, at their death, leaves an estate worth
in excess of £325,000 for the tax year 2014/15
(£650,000 for married couples). Whilst all of an
estate can be left to a married partner on death
without paying tax, should an estate be left to
anyone else then the tax due to be paid will be
at 40% on assets which exceed the threshold.

3. To ensure families don’t avoid paying the tax
(for example by gifting an entire estate just
before death), HMRC can go back and
include any gifts given in the seven years
prior to death when calculating the amount of
tax due.
Inheritance tax used to be a concern for just
very wealthy families, yet rising house prices
throughout the UK, especially in the South of
England mean that more and more families
are affected. It can be very distressing to be
forced to sell a treasured family home or
heirlooms such as items of jewellery or
furniture in order to pay an inheritance tax
bill on the death of a loved one.
Whether you believe your inheritance tax
liability to be large or small, Christmas
followed by the start of a New Year, can be
an opportunity to start to reduce the size of
your estate if you can comfortably afford to
do so, whilst giving yourself a significant
amount of joy in watching loved ones benefit.

4. Gifting Money This Christmas:
Our Tips
Start to give money away. Many people still
don’t know that they can make gifts out of
regular income. This can be an excellent
method of passing wealth on to the next
generation and, providing the gifts pass three
key tests, they will not incur an Inheritance
Tax liability. The gifts must be made out of
income (as opposed to selling assets to fund
them); they must be made on a regular basis
and they must not reduce the donor’s
standard of living. You can find out more by
visiting www.hmrc.gov.uk
Make your gifts sooner rather than later.
Any gift given more than seven years before
the death of the donor is free of Inheritance
Tax – a good example of the need to plan
early. Remember though, that ‘gift with
reservation’ rules apply: if you are giving
something away, you cannot continue to
enjoy the benefit of it. For example, you
cannot give your house to your children and
continue to live in it.

5. But some gifts are more equal than
others. Certain gifts are treated differently,
and in this case the ‘seven year rule’
doesn’t apply. Both parents can give up to
£5,000 to their children when they marry,
and annual gifts of up to £3,000 can also
be given. If you cannot give large sums of
money then it makes sense to make use of
these smaller gift allowances.
Make use of Trusts. Many people believe
that Trusts are highly complicated and are
only to be used for multi-million pound
estates. Far from it. They can be simple
and relatively inexpensive, yet still allow
you to transfer wealth out of your estate
and save Inheritance Tax into the bargain.
Yes, you’ll need specialist advice, but the
potential savings in tax will almost certainly
cover the cost of that advice many times
over.

6. This article is for information purposes and should not be
treated as advice. Individual circumstances should always
be considered prior to purchasing any financial products.
For further information please contact your Wealth
Planner.
Sanlam is a trading name of Sanlam Wealth Planning UK
Ltd (Reg. in England 3879955) and English Mutual Ltd
(Reg. in England 6685913). English Mutual Ltd is an
appointed representative of Sanlam Wealth Planning UK
Ltd which is authorised and regulated by the Financial
Conduct Authority.
You should always speak to a financial adviser before you start gifting to ensure you
are working within the limits, and that you are not in any way negatively impacting on
your income. Email letstalk@sanlam.co.uk if you would like to speak to a financial
adviser at Sanlam.