A smarter approach to Christmas gifting and Inheritance Tax allowances

David Jefferies, partner in our wills trusts & probate team, looks at how seasonal generosity can also be an opportunity to make the most of valuable Inheritance Tax allowances.

Spoiler alert, in three weeks’ time Christmas will be over. If you still haven’t completed your Christmas gift shopping, or simply can’t face crowded shops, or hours on the internet, why not give a gift of cash?

As we all face straitened circumstances, that might be much more welcome than an expensive but unsolicited jumper or kitchen gadget immediately confined to a cupboard.

And remember, for Inheritance Tax purposes:

• You can give away a total of £3,000 of gifts each tax year without them being added to the value of your estate for tax purposes and any unused annual exemption can be carried forward to the next tax year – but only for one year.
• You can make as many gifts of up to £250 per person as you want each tax year as long as you have not used another allowance on the same person. Useful if you have multiple grandchildren, or nephews and nieces.
• Gifts made out of your regular income are exempt from Inheritance Tax.
• Gifts to charities and even political parties are also exempt from Inheritance Tax. Christmas is an appropriate time to be generous to those in need, perhaps even politicians.
• And lastly, gifts to spouses and civil partners of whatever value are exempt from Inheritance Tax – but maybe this is one gift where a carefully considered present rather than cash is best!

Higher value gifts not covered by the exemptions listed above carry possible Inheritance Tax consequences, and for any gifts, careful record keeping of the date, nature and value of the gift is wise.

It is worth noting that gifting can play an important role in reducing the overall value of your estate over time, particularly for those who may be concerned about exceeding the Inheritance Tax threshold.

Smaller, regular gifts can gradually make a meaningful difference without impacting your own standard of living. Taking advice early helps you build a structured approach that aligns with both your financial capacity and your family’s needs.

And while Christmas is about giving, it is also about peace of mind. Ensuring your estate planning is up to date – including your Will, your financial arrangements, and any plans for future care – can provide reassurance for you and your loved ones.

Combining seasonal generosity with long-term planning helps you support the people and causes you care about, while making the most of the allowances and reliefs available to you.

For advice about the implications of any higher value gifts you may be considering, contact our wills, trusts & probate team on 01772 258 321 before making the gift.