Christmas is a time for giving…

06 Dec 2021

Jo Hamilton, Tax Consultant at WR Partners

By Jo Hamilton, Tax Consultant

As we are approaching the Festive Season, it is worth considering whether making Christmas gifts to your loved ones can have an impact on your Inheritance Tax position.

What is Inheritance Tax (“IHT”)?

IHT is a tax on the value of your assets when you die. It is charged at a rate of 40% on the value of assets in excess of the IHT Nil Rate Band, which currently stands at £325,000. As this is a tax on the assets you have at that point in time, you can monitor whether IHT is relevant now and make plans to minimise the impact on your loved ones that you leave behind. IHT can also be chargeable on gifts made in your lifetime if they are not specifically exempt or relieved from IHT (see below), are in excess of the IHT Nil Rate Band and are made within 7 years of your death.

What can reduce IHT?

There are a number of different ways in which you can reduce the value of your Estate so that an IHT liability is lessened:

  • Spending all your wealth during your lifetime!

  • Make gifts during your lifetime

Specifically, where lifetime gifts are made, there are exemptions that can apply as follows:

IHT exemptions:

  • Annual exemption – currently £3,000 per annum and if the previous year’s exemption is unused, this can be brought forward so that £6,000 can be given in one tax year.

  • Small Gifts exemption £250 to any individual in a tax year

  • Gifts in consideration of marriage or civil partnership:

o   £5,000 to a child

o   £2,500 to a grandchild

o   £1,000 to any other individual

  • Gifts out of income – a gift made of excess income can be exempt from IHT. There are some conditions that need to be followed to ensure that the gift is out of excess income, including making sure that after the gift, the transferor was left with sufficient income to maintain their usual standard of living and establishing a pattern of giving.

There are also exemptions that cover the value of assets when either gifted in lifetime or left as legacies in your Will at death:

  • Gifts between spouses

  • Gifts to charity

  • Gifts to political parties

Some gifts in lifetime and on death can attract IHT Reliefs such as:

  • Business Property Relief (“BPR”) – 100%/50% relief on gifts of business assets and shares in certain companies

  • Agricultural Property Relief (“APR”) – 100%/50% relief on agricultural assets such as land and farm buildings

Recent developments

We have just had a quiet Autumn Budget on the IHT front, with the Chancellor making many giveaways to assist the Economy to recover from the COVID-19 pandemic but this leaves us with the question of who is to pay for these giveaways as well as the support already given from the various business support schemes such as the furlough scheme. As IHT receipts have been growing over the last couple of years due to property prices increasing etc, the cynics amongst us point to the fact that some of the exemptions and reliefs detailed above can be seen as ‘generous’ and the restriction or removal of some of said exemptions and reliefs are an easy fix for the Chancellor to boost his coffers. The worry is that from future Budgets in March 2022 and beyond, IHT could be targeted, and people will not have taken advantage of the exemptions/reliefs before any changes take place.


Therefore, as the Festive Season draws closer, it is worth thinking about lifetime giving for IHT planning purposes and consider using all or a combination of the exemptions/reliefs when making Christmas gifts to loved ones.

 If you have any questions for our team then please get in touch on

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