Other one-off gifts. Any number of one-off gifts of up to £250 can be made each tax year without giving rise to any charge to inheritance tax. However, if this threshold is exceeded, even by £1, the relief disappears entirely, and the donor must survive seven years from the date of the gift for there to be no inheritance tax consequences. Unlike the annual allowance, it is not possible to carry forward this allowance, meaning it must be used in each tax year otherwise it is lost.
Anyone who is unable to attend a Christmas wedding due to Covid restrictions and is thinking of spending the money instead on a more lavish present for the happy couple, should consider the potential inheritance tax effect of doing so.
Gifts to a couple to celebrate their wedding or civil partnership are exempt from inheritance tax, the amount determined by the relationship of the donor to one of the parties getting married.
Each parent may give £5,000 tax-free - while the figure is reduced to £2,500 per grandparent or great-grandparent and to £1,000 for anyone else. The gift must be made in contemplation of the event, or on the day, as unfortunately the exemption does not apply to gifts made after.
Gifts from surplus income
Individuals who receive more income than they spend could reduce the inheritance tax liability on their death by regularly giving the surplus income to others.
If the recipients of these funds are the same as the beneficiaries of their will, the effect is that the beneficiary will receive 100 per cent of the intended gift, rather than the amount that remains once inheritance tax has been applied.
This is a valuable relief because there is no upper limit on the amount that can be gifted and there is no “seven-year clock”. Given this, there are conditions that must be met for HMRC to accept that the gifts are not subject to tax.
Foremost among them is the need to show that the donor can continue their ordinary standard of living, by using income only, having made the gifts. It is also important to show an intention to make the gifts regularly, documenting this intention and ideally following through.
Grandparents making a Christmas undertaking that the cost of a grandchild’s education would be met every year is a good example of making a gift on a regular basis
