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Bah humbug, the taxman is here!

4th Dec 2023 | Private Client | Wills & Inheritance Tax
Cartoon of Scrooge on a snowy street

Bah humbug! Perhaps one of the most famous phrases from one of literature’s most famous characters, Ebenezer Scrooge. I certainly don’t mean to be a Scrooge by bringing up a not-so-festive topic, but with the Christmas season in full swing, it’s a good time to think about the tax implications of gifts.

In the eyes of HMRC, a gift includes anything of value, such as cash, personal possessions and property. Smaller gifts are those where the value is £250 or less.

Who you‘re giving the gift to will also have an impact on the tax implications. For those in a marriage or civil partnership, there is no limit to what you can gift your partner if they are a permanent UK resident. There is no tax implication when gifting to registered charities.

For all other recipients, there are rules around how much can be gifted tax-free each year:

  • You can give as many gifts of up to the value of £250 per person as you like each tax year as long as you have not used the same allowance on the same person
  • Christmas gifts you give from your regular income are also exempt from Inheritance Tax
  • For those wanting to make larger Christmas tax-free gifts, there is an annual exemption of £3,000 worth of gifts each year. This can be given to one person or split between several. Any unused annual exemption can be carried forward to the next tax year
  • You can make a gift of any value with no tax to pay, provided you live seven years after giving it. If you die within seven years of giving a gift of larger value, there may be tax implications for your estate, which is calculated by taper relief

As well as gift-giving to family and friends, Christmas is a time for businesses to treat both staff and clients, and there is no escape from the HMRC rules. Businesses will be pleased to hear that an annual party or social function, such as a Christmas party, is exempt from tax if:

  • It is open to all employees (or all employees based at one location)
  • The cost does not exceed £150 per head (inclusive of VAT)

Aside from the annual Christmas Party, limited companies can give a gift of up to £50 to all employees, and no tax is payable. This does not apply to cash, so it must be a gift.

If you have any questions on gifting at Christmas, please get in touch with Winter Addis at 0191 211 7983 or email [email protected].

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