How to Gift Cash This Christmas and Stay Within Inheritance Tax Rules: A Guide

It’s that time of year again! The holidays are upon us and with them, the age-old question of what to give our loved ones. For many of us, the answer is cash. But if you’re looking to gift a large sum of money, you need to be aware of the inheritance tax rules. In this blog post, we’ll outline how you can stay within those rules and still give your loved ones the cash they deserve this holiday season.

IHT Basics

Inheritance tax (IHT) is a tax that is levied on the estate of a deceased person. The estate is comprised of all the assets that the deceased owned at the time of their death, including property, possessions, investments, and cash. IHT is only payable if the value of the estate exceeds a certain threshold; for 2020/21, that threshold is £325,000.

If you are looking to gift a large sum of money this Christmas, it’s important to be aware of the inheritance tax rules so that you don’t end up inadvertently paying more tax than you have to. There are a few ways to stay within the inheritance tax rules when gifting money:

1. Make use of your annual exemption. Every individual has an annual exemption allowance, which for 2020/21 is £3,000. This means that you can gift up to £3,000 per year without incurring any inheritance tax liability. If you haven’t used your annual exemption in previous years, you can carry it forward for one year only, meaning you could potentially gift up to £6,000 this year without incurring any inheritance tax liability.

2. Use your small gifts exemption. In addition to the annual exemption allowance, every individual also has a small gifts exemption allowance of £250 per person per year. This means that you can gift up to £250 to as many people as you like without incurring any inheritance tax liability.

3. Make use of your wedding/civil partnership gifts exemption. If you are getting married or entering into a civil partnership, you can receive monetary gifts from close family members (parents, grandparents, etc.) up to a total value of £1,000 without incurring any inheritance tax liability.

4. Make use of your charitable gifts exemption. You can make unlimited gifts to charity without incurring any inheritance tax liability.

5. Make use of your spouse/civil partner exemption. You can transfer any assets (including cash) to your spouse or civil partner without incurring any inheritance tax liability.

6. Make use of your business relief exemptions. If you own a business or share in a business partnership, there are certain reliefs available that could potentially exempt your business interest from inheritance tax altogether.

7. Make use of your nil-rate band allowance. In addition to the various exemptions outlined above, every individual also has a nil-rate band allowance; for 2020/21, that allowance is £325,000. This means that if the value of your estate does not exceed £325,000, no inheritance tax will be payable on it.

8 . Make use of y our residence nil-rate band. If you pass away leaving your home to descendants, you may be eligible for an additional nil-rate band; for 2 0 2 0 / 21, that band is worth an extra £175,000. This means that if the value of your estate does not exceed £500,000, no inheritance tax will be paid on it.

Conclusion

As we’ve seen, there are plenty of ways to stay within the inheritance tax rules when gifting cash this Christmas! By making use of annual exemptions, small gifts exemptions, wedding/civil partnership gifts exemptions, charitable gifts exemptions, spousal exemptions, business reliefs exemptions, and nil-rate band allowances, you can ensure that your loved ones receive the money they deserve without having to worry about paying any unnecessary taxes. So go ahead and spread some holiday cheer – just be sure to do it within the law!