Dec 14, 2021 | MARIE SMITH
Christmas is a time for exchanging gifts, and spending time with family and friends. With the festive season upon us there’s no better time to talk about gifting. It’s a topic that crops up with our clients all the time. Whether it’s gifts to family, friends or charity, it’s important to understand the rules and benefits.
We thought we’d share our wisdom…
One of the most straightforward ways to make sure tax isn’t charged unnecessarily when you die is to consider giving away assets while you’re alive. You’re allowed to make some gifts without any tax being due after your death. We’ve summarised the main exemptions:
Gifts given in excess of the above exemptions are generally potentially exempt transfers. After 7 years they fall outside of your estate and aren’t subject to tax on your death.
There are few ways you can give to charities and there are some great tax benefits, not just from an estate point of view.
Depending on your earnings, you might be able to claim income tax relief on gifts. Example – You donate £100 to charity – the charity claims Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%) via your tax return. Be careful though if you incorrectly claim gift aid this can result in a tax liability for you.
Typically if you gift shares to people (other than your spouse), the gift is chargeable to capital gains tax. When you gift shares to charity this isn’t the case, you can potentially get income tax relief on the value of the shares as well as exemption from Capital Gains Tax. Win win!
If you nominate assets to charity within your will, then the gift is exempt from inheritance tax. If you nominate 10% of your net estate to charity, then the rate of inheritance tax you pay may be reduced from 40%-36%. This could potentially be a big saving and can result in your family receiving more of your estate! Beware though, when you die your will becomes a public document and charities fight hard for inherited funds. Reviewing your will is an important part of reviewing your financial plan.
This is a specialist area so it’s important to take advice. Charitable Trusts must be created for public benefit and are generally created for larger sums of money. They can continue for many years and long after the person that died set it up. We look after lots of charitable funds at CPW so if this is something of interest, please get in touch.
Following COP26 and the worrying pace at which our climate is changing, reducing carbon emissions is at the forefront of people minds. If offsetting your carbon footprint is something you’re interested in by way of charitable giving, these projects might float your boat:
Whether its gifts to family, succession planning, charitable donations, or restructuring your Will, a gifting plan should be thought through as part of your overall financial plan and objectives.
There are structures that can be put around gifts to protect the value for future generations if appropriate.
We can help you work out how much you can afford to give away and remain financially sound.
Speak to us and we’ll help you put a plan in place.