Gifts and inheritance tax in the season of goodwill

Christmas is the season of goodwill and, aside from choosing what presents to wrap and place beneath the Christmas tree, you may also be wondering if you can make some more substantial gifts to take advantage of tax reliefs such as agricultural relief and lifetime gift exemptions.

Emma Elwess, Director of Private Client at Ware & Kay in York & Wetherby, explains the different ways farmers can use tax reliefs to give away gifts without incurring inheritance tax.

General lifetime gifts

During your lifetime you can give away any of your possessions worth up to a total value of £325,000 without being liable to inheritance tax. Gifts given over this amount will usually be subject to inheritance tax when you pass away (unless you live longer than seven years after the gift is given).

There are, however, some exceptions to this rule, including:

Annual exemption – this allows you to give away any of your cash or possessions worth up to £3,000 per annum, inheritance tax-free. The annual exemption period runs from 6 April to 5 April; you can carry over any allowance that is left over to the next tax year, up to a maximum of £6,000.

Charitable causes – you can give away any amount to a charitable cause inheritance tax-free.

Small gifts – if you want to give cash gifts to loved ones for Christmas you are allowed to give away as many gifts of up to £250 per person as you like during the tax year, although this is not an option if you have used another exemption on a gift to that individual.

Surplus income – if you regularly have more income than you need, you can give some of this surplus away inheritance tax-free as long as you can still maintain your usual standard of living. HMRC requires this to form part of a regular spending pattern, so a one-off payment is unlikely to qualify. However, if you undertake to put money into your children’s bank accounts every Christmas, or for your grandchildren on a regular monthly basis, this is a handy exemption to use.

Wedding or civil ceremony gifts – even if you have gifted a bride- or groom-to-be a part of your annual exemption for Christmas, you can give them a wedding or civil ceremony gift worth up to £1,000. Parents can give £5,000 and a grandparent can give £2,500.

Agricultural relief

Farmers who want to give loved ones a weightier gift for Christmas, you can take advantage of Agricultural Relief and give away land that is used to grow crops or to rear animals intensively or buildings associated with such uses (see https://www.gov.uk/guidance/agricultural-relief-on-inheritance-tax for property that does and does not qualify).

You, a company you control, or your spouse or civil partner must have owned and occupied the property for agricultural purposes for two years immediately before its transfer to qualify for the relief. This increases to seven years if the land or property was occupied by someone else.

You get 100% relief from inheritance tax if you owned the land and farmed it yourself; the land was used by someone else on a short-term grazing licence; or it was let on a tenancy that started on or after 1 September 1995. Relief is due at a lower rate of 50% in most other cases.

How we can help

The rules surrounding inheritance tax gift exemptions and Agricultural Relief can be complex and you should seek our legal advice before making substantial gifts during your lifetime.  Whilst the gifts may be exempt from IHT there may be capital gains tax to consider.

Our specialist team can help you decide how best to distribute your surplus cash and possessions to minimise your inheritance tax bill, and ensure you keep effective records of the gifts made to make thing easier for your executors when you pass away.

We can also advise you on issues on, for example, whether to use Agricultural Relief or Business Relief to ensure the continued success of your farming business while you are still alive.

For more information please contact Emma Elwess on York 01940 716000, Wetherby 01937 583210 or Malton 01653 692247 or email emma.elwess@warekay.co.uk to see how we can assist.