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Christmas and New Year is the time for giving – but what are the tax implications?

As this is the ‘Season of Goodwill’ in this month’s tax tips we are focusing on the tax implications of Giving.

Charity Donations

Firstly let’s consider the donations you make to Charities. Many people are aware that if you make a donation to a charity via the gift aid scheme, then the charity will receive an additional payment of basic rate tax from HMRC. But what many people paying higher rates of tax may not realise is that they can also benefit from tax relief on donations.  By declaring their charitable Gift Aid donations, they can claim relief equal to the difference between the higher rate of tax and the basic rate of tax at 20% on the total value of the donation.  So if you donate £100 to a charity, and you are currently paying tax at 40% you can claim additional tax relief which saves £24 tax!

‘Small’ gifts

What about the gifts to family and friends? Well you can make small gifts up to the value of £250 to as many individuals as you like in any one tax year and they will all be exempt from Inheritance Tax when you die.

Annual exemption

You can give away additional gifts worth up to £3,000 in total in each tax year and these gifts will also be exempt from IHT. There is also provision to carry forward the unused part of the £3,000 exemption from last tax year.

Wedding gifts/civil partnership ceremony gifts

If you give cash or gifts or because of a Wedding or civil partnership, then this will be exempt from IHT if it is below the following limits:

Parents –  each up to £5,000

grandparents and great grandparents – each up to £2,500

anyone else – up to £1,000

Regular gifts or payments that are part of your normal expenditure

If you make regular gifts out of your after-tax income, these can also be exempt from Inheritance Tax. These gifts will only qualify if you have enough income left over to maintain your normal lifestyle.

Any other gifts

Gifts in excess of the above exemptions, but which were made more than seven years before the donor dies are free of IHT. However, if you reserve any benefit from a gift – such as continuing to live in a house you have given away- “gift with reservation” rules may apply tax as though your gift had never happened…

 We offer a free 30 minute consultation, so if you would like any additional information regarding the above or any other tax issues concerning you, then please contact us or visit us in our offices in Walmley Village, Sutton Coldfield.

This article appears in Walmley Pages Magazine, a local magazine delivered to homes and businesses in Sutton Coldfield, Walmley, Minworth and surrounding area’s.

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