Small Gifts - What You Can Give Away Tax-Free In The UK

Most people know about the main inheritance and income tax reliefs, however there are also some modest exemptions that are useful to businesses and individuals wishing to make tax free gifts.

For gifts between individuals there is an annual exemption. Everyone can give away up to £3,000 per tax year, free of inheritance tax. This relief can be carried forward one year if not used so it could be £6,000 given away tax free within a year.

There are other gift exemptions which can be used too - the small gifts exemption enables an individual to give away up to £250 to as many people as they like each year and this is completely inheritance tax free. However, you cannot give £3,000 to someone and give them the extra £250 too.

If someone is getting married a parent can give away £5,000 to their child; a grandparent can give £2,500 and anyone else can give £1,000 free of inheritance tax.

Charitable gifts are inheritance tax free and an individual can give away an unlimited amount to charity. Remember that taxpayers can also get gift-aid, which gives additional income tax relief.

Trivial benefits can be of use to employers. Employers can give employees non-cash gifts of up to £50 each free of income tax and national insurance. For example a bottle of wine, flowers, or vouchers can be given provided the voucher cannot be exchanged for cash.

These rules are very strict, so if you give something away worth more than £50 the whole amount becomes taxable. There is an annual cap of £300 per person for businesses controlled by five or fewer shareholders, so this is up to six qualifying gifts a year.

Christmas parties or other functions can be paid for by employers up to £150 per head (including VAT) per tax year. This is in addition to the trivial benefits exemption. Again, this becomes fully taxable if you go over the £150 per head so be aware when undertaking events.

Finally, an employer can give long service awards to employees. These are tax free up to £50 per year of service, provided the employee has completed at least 20 years and no similar award has been made in the previous 10 years. This is for non-cash awards only and for this purpose vouchers class as cash.

If you are considering making gifts, you must be precise in making them and stick to the rules for them to be tax free.

These smaller gift exemptions are worth using by employers and individuals each year. They are tax free to the recipient and for employers they are tax deductible. Also, there is a side benefit in that occasional £50 gifts to employees is always well received and great for motivation in the workplace.

So, get the paperwork right, stay within the limits and enjoy making the gifts.