Tax implications of seasonal giving

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Steve Maggs, tax director at Robinson Reed Layton, is keen to raise awareness of the tax implications of seasonal giving, so generous gift givers are not caught out.

Givers should be aware that they could be affected by inheritance tax, capital gains tax and income tax obligations when gifting cash or assets to family and friends.

Maggs explains: “For people in the spirit of giving I wanted to remind them not to forget the tax implications when making gifts over the festive period.

“There are tax considerations associated with every gift made, whether it be inheritance tax, capital gains tax or income tax. Consequently, gifts can give rise to unexpected tax consequences if advice is not sought.  It would be disappointing to make a generous gesture and then find out the tax man can have a large proportion of it.”

“I know it’s not very cheery for a seasonal article, but gifts made by an individual within the last seven years of their life could be subject to inheritance tax so be aware of any exemptions you can maximise.”

Exemptions to the Inheritance Tax seven-year rule include, for example, that a person can make gifts totalling £3k per tax year, within their annual inheritance tax allowance, and a person can give away a maximum of £250 to as many individuals as they like.

In addition gifts on contemplation of a marriage are exempt from inheritance tax and the limits depend upon the relationship of the donor to the happy couple, these are: Parent (£5k); Grandparent (£2.5k); and, any other person (£1k). Don’t forget all gifts to charities and political parties are also exempt for the purposes of inheritance tax.

Maggs continues: “It’s also important to be aware that, contrary to popular belief, capital gains tax does not only apply when you sell an asset. When you make a gift of a chargeable asset (broadly anything other than cash and a few other exceptions) you are treated as selling the asset at its market value for capital gains tax purposes.

“Income tax is less of a consideration than inheritance tax and capital gains tax, however, it can spoil the impact of a gift – much like unwrapping a sizeable present only to find that some joker has wrapped up several cardboard boxes containing nothing but more wrapped cardboard boxes because they have far too much time on their hands!”

Gifts of income producing assets to minor children (or trusts where minor children are beneficiaries) where the income exceeds £100 per year are caught by some anti-avoidance rules that deem the taxable income to remain the donor parent’s.

To find out more about the implications of giving please, see Steve Maggs Tax Blog.