Tax Efficient Gifting

It’s the time for giving – but watch the tax!

December 18, 2018

Don't let tax spoil your generosity. Learn how to give gifts without paying tax, and how TAG Accountants Group can help you plan your giving.

How to Give Tax-Free Gifts in the UK

Here at Wolverhampton Accountants TAG Accountants Group, we support the concept of giving, be it to family, employees or charities. Professionally, we act for charity clients, many of whom do fabulous work in our local communities and so we know first-hand that any support will be most gratefully received; and especially at this time of year.

As pro-active accountants, we also like to make sure our clients are aware of any potential HMRC issues that can arise from the process of giving itself, and most importantly, how to avoid falling foul of them in the first place!

Gifts to your family members – use your annual inheritance tax (“IHT”) exemption

The annual IHT exemption allowance is limited to £3,000 per donor per year but is also a tax efficient way of passing wealth down the generations. Although it is an annual exemption, it is still possible to carry forward up to one year’s unused allowance. This means that if you did not use your annual allowance in 2017/18 tax year, you may make gifts of up to £6,000 in 2018/19 tax year. 

Incidentally, if gifts to individuals do exceed the annual exemption there may still be no IHT to pay if the donor survives for 7 years or, if the gift or gifts fall within the donor’s £325,000 IHT nil rate band.

There is also a more generous inheritance tax exemption that applies where the donor can prove that he/she is not transferring capital but is instead making gifts out of their income. Detailed conditions apply to make use of this exemption and this requires records to be maintained of income and expenditure to prove that there is sufficient surplus income each year to make regular gifts to the beneficiaries. We can provide you with assistance in keeping the necessary records to satisfy HMRC in these circumstances, so please call us.

Whilst there will be no capital gains tax (“CGT”) on gifts of cash, there may be CGT to pay where the gift comprises shares or other assets as the transaction will generally be deemed to take place at market value between connected persons – there may be ways around this so please speak to us first to find out more.

Gifts to employees of up to £50

From April 2016, new rules were introduced regarding so called “trivial” benefits in kind. These new rules were brought in as a simplification measure as these benefits in kind do not now need to be reported to HMRC and are tax free for the director or employee. 

There are of course several key conditions that need to be satisfied to qualify for these exemptions. 

They are:

  • the cost of providing the benefit cannot exceed £50 
  • it cannot be in the form of cash or a cash voucher 
  • the employee cannot be entitled to the benefit under a contractual obligation
  • it cannot be provided in recognition of particular services performed by the employee under their employment duties.

This means the exemption is only relevant to small gifts to staff at say Christmas or on their birthday and can include gifts of food, wine, or store vouchers. Also, if gifts are made to directors, the exemption is capped at £300 per tax year.

Gifts to charity

When donating to charities, to provide additional benefit to the charity, higher rate taxpayers should “Gift Aid” any donations, which also means that the donor can also obtain additional tax relief on the payment itself too. As an example, by using “Gift Aid”, a £20 cash donation results in the charity being able to reclaim a further £5 from HMRC (making a gross gift of £25). Where the individual is a 40% higher rate taxpayer, he or she can claim a further £5 tax relief under self-assessment, reducing their net cost to £15.

You will need to make a declaration that you are a UK taxpayer and if you have not paid enough UK tax to support the Gift Aid amount, you will be taxed on the shortfall. Remember, Gift Aid does not just apply to gifts of cash – some charity shops will now sell your donated items on your behalf and can treat the sale proceeds as Gift Aided donations. 

You can also gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets, so do speak to us first to ensure you optimise the tax position both for yourself and any recipient charitable organisation.

And finally, Season’s greetings from all of us here at TAG Accountants Group

The TAG Accountnats Group team would like to take this opportunity to wish you all the best for Christmas and a very prosperous 2019. With that in mind, if you do refer us to anyone and they then become a client, we will be happy to pay 10% of their first-year fees as a ‘thank you’.

For more details on that offer or indeed anything else you feel we can help you with, please call us on 01902 783172 or alternatively, just complete the contact form HERE and one of our friendly team will be delighted to call you back.