A guide to tax exempt gifts at Christmas

Christmas is a time for friends and family to come together and often swap presents between loved ones. However, many people are feeling the financial impact of rising living costs and are deciding to give cash gifts rather than physical presents this year.

Understanding the Inheritance Tax implications of Christmas gifts.

Whether you want to help by paying for a loved one’s mortgage for a year, helping pay their utility bills or just generally giving them money to enable them to have a splurge, it is important to consider any Inheritance Tax implications on giving away sums of money.

What happens if you die within seven years of making a gift?

Executors will be appointed under your will – these are the people you have chosen to deal with the administration of your estate when you pass away. They will have to consider whether any gifts that you have made need to be brought back into your estate when valuing your estate for Inheritance Tax purposes.

It is therefore important to make a list of any cash gifts that you give away, the date the gift is made, and to whom and for what purpose. That way, your executors will have a clear understanding of what gifts may have to be declared on your tax papers.

What counts as a gift for Inheritance Tax purposes?

• Money 
• Household and personal goods
• A house, building or land
• Stocks and shares listed on the London Stock Exchange
• Unlisted shares you held for less than two years prior to your death

Tax allowances for gifting

There are several tax allowances available, and below are a few:

Gifts to spouses or civil partners

Currently, you do not have to pay Inheritance Tax on any gifts made between spouses or civil partners, as long as they are legally married and live in the UK permanently.

Annual exemption for gifts

Everyone has an annual exemption, which means that they can give away up to £3,000 worth of gifts in each tax year. A tax year runs from 6 April to 5 April the following year. You can gift away a total of £3,000 worth of gifts to one person or split it between several people.

Another tax advantage is that you can carry forward any unused tax allowance for the previous year, which will enable you to increase the amount that you are able to gift away. 

Gifts to charities and political parties

There is no Inheritance Tax to pay on any gifts you give to charities or political parties.

Small gift allowance

You can give away as many gifts of £250 per person as you would like in any tax year, so long as you have not claimed another allowance for the same person.

Gifts with reservation of benefit

If you decide to give away an asset, but you still benefit in some way from the asset, then the asset will count towards the value of your estate. 

For example, if you gift away a property to someone, but you are to remain in the property, then this is a gift with reservation of benefit and will be brought back into your estate when calculating the value of an estate.

It is, therefore, important that before you decide to gift away a large asset, you get specialist advice as to the possible Inheritance Tax implications of doing so.

(This article was originally posted on 14 December 2021 and updated in November 2024)