Tax Efficient Gifting

Christmas is a time for giving but make it tax effective!

December 9, 2019

Discover how to make tax-effective gifts to your family this Christmas. TAG Accountants Group share some tips and rules to help you save money and avoid IHT.

TAG Accountants Group Guide to Tax-Smart Giving at Christmas

Once again, the most wonderful time of the year is upon us, and as tax advisers, whilst we always encourage generosity, we also thoroughly recommend that any gifts or donations made by our clients are done so tax efficiently.

Consequently, we thought it might be helpful to include some reminders around making tax effective gifts to directors/other employees and charitable donations.

There is no benefit in kind on gifts of less than £50 to employees/directors.

It is worth remembering that gifts to staff at Christmas can be tax free if structured correctly. Since April 2016, employers can provide both their directors and employees with certain “trivial” benefits in kind tax free.

HMRC brought in these rules as a simplification measure, such that certain benefits in kind are tax free for the employee and do not now need to be reported.

Inevitably there are several conditions that need to be satisfied to qualify for the exemption, the main ones being:

  • the cost of providing the benefit must not be greater than £50.
  • the benefit cannot be cash or indeed a cash voucher. 
  • the employee must not be entitled to the benefit as part of any contractual obligation e.g. a salary sacrifice scheme.
  • the benefit is not provided in recognition of services performed by the employee as part of their employment (or in anticipation of such services) e.g. for doing a good job with a client.

Aside from Xmas, this exemption is often used by employers for small gifts to staff on their birthday, or other occasions (e.g. a special anniversary) and can include gifts of food, wine or store vouchers. Multiple gifts can be made providing each does not exceed £50.

However, where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the total exemption is capped at £300 for the tax year but this still leaves scope to make six gifts a year tax free.

Remember, use Gift Aid to make charitable donations.

Higher rate taxpayers should consider making “Gift Aid” payments to provide additional benefit to charities and to enable the donor to obtain additional tax relief on the payment. 

This means that where an individual makes a £20 cash donation to a charity, the charity can reclaim a further £5 from HMRC so it becomes a gross gift of £25. Where the donor is a 40% higher rate taxpayer, he or she can claim a further £5 tax relief under self-assessment, reducing the net cost of their donation to £15.

The donor will be required to make a declaration that they are a UK taxpayer and if the donor has not suffered enough UK tax to support the Gift Aid amount, then the donor will be taxed on the shortfall.

It is worth remembering that Gift Aid does not just apply to gifts of cash. For example, if you donate an item to a charity shop, it will be able to sell the donated item on your behalf and be able to treat the sale proceeds as a Gift Aided donation. 

You can also gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.

TAG Accountants Group is always here to help. 

Whilst we all enjoy being generous, why not help yourself and the recipient by taking advantage of the reliefs that are available to you? 

To understand more about how one of our friendly experts can help you maximise your tax position, call us here at TAG Accountants Group, Wolverhampton today on 01902 783172 or alternatively just click HERE to email us via our website.

Finally, we would like to wish all our readers a very Merry Christmas and a prosperous 2020!