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Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Do you have to pay tax on Christmas cash gifts?
Karl
1st Dec 2023
With Christmas fast approaching, you might be thinking of giving give cash to a loved one this year. But did you know that your yuletide generosity could have tax implications?
In this article, we’re going to explain everything you need to know about tax-efficient gifts at Christmas, and at other times of the year.
Keep on reading for all the details or click on a link to head straight to a section…
Are cash gifts taxable?
Cash gifts, whether for Christmas or not, may be taxable. That’s because if you give cash away during your lifetime it may count towards your estate for Inheritance Tax purposes.
However, any gifts you give to others will only count towards your estate if you die within 7 years AND you’ve more than £325,000 in assets (including property, savings, bonds etc).
If you’ve less than £325,000 in assets, or you don’t die within 7 years, then you shouldn’t have to worry about your loved ones paying tax on any money you give them.
Inheritance tax threshold warning
Be aware that the Government reserves the power to meddle with Inheritance Tax thresholds. As a result, there’s a chance it will become less generous in future.
During the recent Autumn Statement there were murmurings that the current threshold could be made more generous. However, these rumours ultimately turned out to be hot air.
Cash gift tax allowances
Even if you have more than £325,000 in assets and you pass away before the year 2030, cash given away during your lifetime may still be free of Inheritance Tax.
This is thanks to two generous allowances that apply to gift giving. Let’s explore these allowances:
1. The £3,000 annual allowance
Each tax year – the latest which began on 6 April 2023 – you can give away up to £3,000 to family or friends without any tax implications. In other words, a gift up to this amount won’t count towards your estate for Inheritance Tax purposes.
If you don’t use the full £3,000 allowance in a single tax year, then you can carry it forward to the next year. However, you can only carry forward this allowance once.
2. The £250 allowance on individual gifts
In addition to the £3,000 annual allowance, you can also hand out up to £250 every year to as many people as you like. These gifts won’t impact the value of your estate, and they also don’t count towards your £3,000 annual allowance.
For most, this £250 single allowance will probably cover most cash gifts given over the festive period, and other big holidays.
There is one important rule to be aware of though: If you’ve already gifted someone £3,000 in a tax year, then you can’t gift another £250 to the same person. That’s because you can’t use both the £3,000 and £250 allowance on the same person.
Tax-free gifts: 5 exemptions
Alongside the £3,000 and £250 tax-free allowances, there are 5 other exemptions that apply to tax on gifts for Inheritance Tax purposes. Let’s take a closer look:
1. Gifts to a spouse or civil partner
If you’re married or in a civil partnership, gifts between your spouse or civil partner are completely free from inheritance tax. This is one big benefit of tying the knot!
2. Wedding gifts
If a loved one is about to get married, then you can give them a cash gift without worrying about them having to pay Inheritance Tax on it.
However there are limits that apply. Parents can give up to £5,000, grandparents can give up to £2,500, while others can give up to £1,000 each.
These gifts don’t have to be given on a day of a wedding or civil partnership. They can also be gifted shortly before the big day.
3. Gifts to charities & political parties
If you want to gift money to a charity or political party, then you can do so without having to worry about tax. Just ensure that the charity or political party is properly registered.
4. Gifting money straight from your income
If you have an income, it’s possible to give some of it away on a regular basis without it being liable for Inheritance Tax.
Your ‘income’ may include earnings from a job or a pension. The only rule that applies is that any money you give away doesn’t affect your lifestyle.
5. Money for university costs
If you’ve children then you can contribute to their university tuition fees and living costs. There isn’t any limit as to how much you can give, as long as your offsping remain in full-time education or training.
What is classed as a ‘gift’?
If you’re planning to give cash to a loved one for Christmas, then you’ll probably find the above allowances more than adequate.
However, just bear in mind that any gifts given must be ‘gift without reservation.’ This means you can’t expect anything in return for it.
Nudges and ‘wink, winks’ aren’t allowed…
So if your gift isn’t one without reservation, the above allowances do not apply!
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice.
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