In the UK, we spend almost £1 billion per year on Valentine’s gifts. Fortunately for the lovebirds out there, you can take advantage of some tax free valentines day gifts! Any gifts to your spouse or civil partner are completely exempt from inheritance tax (IHT), so there is no need to hold back on showing your other half how much you care. The only exception to this is if the donor is UK domiciled but the recipient is not, meaning that only the first £325,000 transferred is exempt but don’t let this put you off that grand romantic gesture!
If you gift an asset to your spouse or civil partner, the transfer will take place without creating a capital gain or a loss and the gain will not crystallise until they dispose of the asset. Therefore, by transferring a share of an asset to your spouse before a planned disposal, you can potentially take advantage of both of your annual tax-free allowances and minimise your capital gains tax (CGT) liabilities.
Cash gifts to anyone other than your spouse are exempt from CGT, however, gifts of assets are subject to CGT to the extent that the gain exceeds your annual exemption (£11,300 for 2017/18), unless they attract any reliefs.
Usually, gifts to non-spouses only become chargeable to IHT if they take place in the 7 years prior to a death but there are a number of exemptions available to mitigate any potential IHT due.
If you are not yet married to your partner or you want to make a gift to anyone else, you can utilise the £3,000 annual allowance as well as any unused allowance brought forward from the previous year.
Alternatively, the small gifts exemption allows you to give up to £250 per person per tax year. Beware that the whole of any gifts that exceed £250 could be treated as a ‘potentially exempt transfer’ for IHT; however, there is no limit to the number of donees.
If a friend or relative’s marriage or civil partnership is coming up, there are also IHT exemptions, which depend upon the relationship between donor and done. Parents (including step-parents) are able to gift up to £5,000 each to their child on their big day, while grandparents (and remoter ancestors) can each give up to £2,500. For anyone else, gifts of up to £1,000 can be made, however, the limits apply per marriage, meaning that a father could not gift his daughter £5,000 and also claim the exemption on a £1,000 gift to his new son-in-law. The marriage exemptions are not all or nothing, so only the excess will be treated as a potentially exempt on larger gifts.
Finally, regular gifts made to an individual, including payments to cover pension contributions or school fees, are exempt from IHT in these are considered to be “normal expenditure out of income”. That is to say that the gifts are made habitually and leave the donor with sufficient income to maintain their normal standard of living.
With so many opportunities to mitigate your potential IHT liability, why not share the love this Valentine’s Day! Contact us for more information