£250 gifts and 'normal' gifts out of income...
Discussion
Thinking ahead here and trying to make an Executor's life that bit easier!
I get the point about not making any £250 gifts to individuals who have already received gifts totalling £3,000 in a given tax year, but could a grandparent comfortably pay £250 pa into each grandchild's Junior ISA if they are also giving them 'normal' Christmas and Birthday gifts?
E.g. Gifts totalling total £350 per grandchild, per annum being £250 pa paid directly into their Junior ISAs and circa £100 worth of cash and/or equivalent gifts as Christmas and Birthday presents?
What if any complications would arise if said grandparent decided to transfer lump sums (e.g. £200-£300) to their child at Christmas so that they could sort out the gifts for the grandchildren on their behalf?
Just wondering if anyone out there has practical experience of how pernickety could HRMC actually get here...
"Exempted gifts
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate.
This is known as your ‘annual exemption’.
You can carry any unused annual exemption forward to the next year - but only for one year.
Each tax year, you can also give away:
- wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.
Small gifts up to £250
You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person."
Source: https://www.gov.uk/inheritance-tax/gifts
I get the point about not making any £250 gifts to individuals who have already received gifts totalling £3,000 in a given tax year, but could a grandparent comfortably pay £250 pa into each grandchild's Junior ISA if they are also giving them 'normal' Christmas and Birthday gifts?
E.g. Gifts totalling total £350 per grandchild, per annum being £250 pa paid directly into their Junior ISAs and circa £100 worth of cash and/or equivalent gifts as Christmas and Birthday presents?
What if any complications would arise if said grandparent decided to transfer lump sums (e.g. £200-£300) to their child at Christmas so that they could sort out the gifts for the grandchildren on their behalf?
Just wondering if anyone out there has practical experience of how pernickety could HRMC actually get here...
"Exempted gifts
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate.
This is known as your ‘annual exemption’.
You can carry any unused annual exemption forward to the next year - but only for one year.
Each tax year, you can also give away:
- wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.
Small gifts up to £250
You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person."
Source: https://www.gov.uk/inheritance-tax/gifts
Are you over thinking this? If the estate is going to be subject to IHT, then these smaller gifts, even £3000, are not really going to make much difference.
What will make a lot of difference is time, the sooner substantial gifts are made the better as the 7 year rule kicks in, even after 3 years the IHT rate is less.
Give the money away now if it is not required, the sooner the better.
What will make a lot of difference is time, the sooner substantial gifts are made the better as the 7 year rule kicks in, even after 3 years the IHT rate is less.
Give the money away now if it is not required, the sooner the better.
What if any complications would arise if said grandparent decided to transfer lump sums (e.g. £200-£300) to their child at Christmas so that they could sort out the gifts for the grandchildren on their behalf?
What if that was done as cash rather than transfer?
No issues in anything you are proposing IMO.
What if that was done as cash rather than transfer?
No issues in anything you are proposing IMO.
I get the bigger picture. This is just a bit of tinkering.
Assume that the £3k annual exemptions will be used elsewhere and there is potential to establish some new normal/regular gifts out of surplus income - all of this before they think about PETs (and the 7-year rule) where the real benefits will lie.
However, with 10 grandchildren in the mix and both grandparents still in circulation, it would appear that they could jointly give away £5k pa using the £250/head exemption, reducing the potential IHT bill by £2k for every year that they keep this up.
I just don't want the family to discover down the road that this IHT avoidance gets lost based on the fact that modest Christmas and birthday gifts were also in the mix as the HMRC website text now in bold below makes it less than clear to me.
I just don't know how detailed an Executor might expect to go into before signing off on the most favourable self-assesment outcome, and then ultimately, how picky HMRC might get, if they ever needed to see chapter and verse.
"Exempted gifts
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate.
This is known as your ‘annual exemption’.
You can carry any unused annual exemption forward to the next year - but only for one year.
Each tax year, you can also give away:
- wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.
Small gifts up to £250
You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person."
Assume that the £3k annual exemptions will be used elsewhere and there is potential to establish some new normal/regular gifts out of surplus income - all of this before they think about PETs (and the 7-year rule) where the real benefits will lie.
However, with 10 grandchildren in the mix and both grandparents still in circulation, it would appear that they could jointly give away £5k pa using the £250/head exemption, reducing the potential IHT bill by £2k for every year that they keep this up.
I just don't want the family to discover down the road that this IHT avoidance gets lost based on the fact that modest Christmas and birthday gifts were also in the mix as the HMRC website text now in bold below makes it less than clear to me.
I just don't know how detailed an Executor might expect to go into before signing off on the most favourable self-assesment outcome, and then ultimately, how picky HMRC might get, if they ever needed to see chapter and verse.
"Exempted gifts
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate.
This is known as your ‘annual exemption’.
You can carry any unused annual exemption forward to the next year - but only for one year.
Each tax year, you can also give away:
- wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
- payments to help with another person’s living costs, such as an elderly relative or a child under 18
- gifts to charities and political parties
You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.
Small gifts up to £250
You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person."
One option is to do gifts from excess income, these gifts should not affect their lifestyle.
Eg if they have £1000 per month from a pension they do not need or spend then they could gift this, £100 per grandchild every month.
Important thing is to write everything down, keep a record, and it must be regular gifts, doing it every month works well.
This helps by not increasing their wealth, so many pensioners have too much income, just builds up and up in their bank accounts and adds to an ever increasing estate.
By far the best way of avoiding IHT is to give your money away, whilst you're still able to see your children/grandchildren enjoy it.
Also doing the bits and bobs you've mentioned above is actually adding burden for any future executor, imagine having to go through 7 years of banking etc to try and work out who gifted what to who, was it a birthday, was it for Christmas. Having to add up all the amounts to see if it was £3K. PITA for any executor, I'd expect most to just ignore it and put 'Nil' on the probate form.
Eg if they have £1000 per month from a pension they do not need or spend then they could gift this, £100 per grandchild every month.
Important thing is to write everything down, keep a record, and it must be regular gifts, doing it every month works well.
This helps by not increasing their wealth, so many pensioners have too much income, just builds up and up in their bank accounts and adds to an ever increasing estate.
By far the best way of avoiding IHT is to give your money away, whilst you're still able to see your children/grandchildren enjoy it.
Also doing the bits and bobs you've mentioned above is actually adding burden for any future executor, imagine having to go through 7 years of banking etc to try and work out who gifted what to who, was it a birthday, was it for Christmas. Having to add up all the amounts to see if it was £3K. PITA for any executor, I'd expect most to just ignore it and put 'Nil' on the probate form.
Edited by megaphone on Wednesday 10th March 23:09
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