It’s a week before Christmas and I have heard on the grapevine that Queen Elizabeth and Prince Phillip have left it too late to start their Christmas shopping this year and have decided to make cash gifts to their family members.
Here are some examples of how they can make the cash gifts without triggering an inheritance tax liability:
Every individual person has an annual exemption of £3,000.00 per tax year (6th April to 5th April) which they can give away without triggering an inheritance tax liability. Any unused annual exemption can be carried forward to the next tax year if it has not been used in the previous year.
Queen Elizabeth and Prince Phillip each have an annual exemption of £3,000.00 (i.e £6,000.00 between them). They intend to give each of their children, Charles, Anne, Andrew and Edward £2,000.00 this Christmas. This gift will not trigger any inheritance consequences as the amount falls within their annual exemptions.
Gifts made to a Spouse or Civil Partner are exempt for inheritance tax purposes.
The Queen feels she would like to give Prince Phillip something special this year and rather than giving him cash, she decides to give him her racehorse ‘Speedy Gonzales’ worth £500,000.00. As they are married, there will be no inheritance tax payable on this gift as spouse exemption can be applied.
In any one tax year, you can give £250.00 per person without any inheritance tax consequences. This amount can be given to as many beneficiaries as you wish during the same tax year.
The Queen wishes to give a Christmas gift to all the members of staff that keep the royal household ticking over. There are 1,500 members of staff in total and she decides she would like to give them £250.00 each to say ‘thank you’. There will be no inheritance tax consequences in this regard and she has reduced the value of her estate by £375,000.00 (£250.00 x 1,500).
Gifts out of surplus income
A person can make a gift out of surplus income so long as it doesn’t affect their usual standard of living. Certain criteria must be met when making these gifts and we recommend you obtain specialist advice in this regard.
Prince Phillip has more than enough income to maintain his usual standard of living and would like to make gifts out of his surplus income. Prince Phillip doesn’t wish to make a cash gift direct to his great grandchildren, Prince George, Princess Charlotte and Prince Louis as he doesn’t feel it will be spent wisely. He therefore decides to pay for their private education for the next 3 years and pays this direct to the school/nursery. By showing there is a regular pattern (i.e. £3,000.00 per month) and the fees are not being paid from capital, there will be no inheritance tax payable on the gifts out of his surplus income.
All donations to Charities are exempt from inheritance tax.
Queen Elizabeth wishes to make a gift of £3,000.00 this Christmas to The Royal National Lifeboat Institution (RNLI). This gift will not trigger an inheritance tax liability as the RNLI are a registered charity in the UK.
Each tax year, you can give away the following amounts for a wedding or civil partnership:
£1,000.00 per person; and
£5,000.00 per child; and
£2,500.00 per grandchild or great grandchild.
Queen Elizabeth and Prince Phillip each made a wedding gift of £2,500.00 to Princess Eugenie and Prince Harry this year (e.g £10,000.00 in total). There are no tax consequences as they have each used their individual wedding gift allowance.
Queen Elizabeth is also attending the marriage of her friend, Christina this Christmas and is giving her a wedding gift of £1,000.00. There is no limit on how many times you can utilise the wedding gift allowance in any, one tax year and therefore, there will be no tax consequences on this second wedding gift.
Some people may wish to make a gift that does not fall into any of the exemptions listed above (e.g £200,000.00 to help a child buy a house). An individual can make a gift of any amount, however they must bear in mind that if they die within 7 years of making the gift, the value of that gift will be added back into their estate for inheritance tax purposes as the Executors will need to declare to gift to HM Revenue & Customs.
Any gifts that exceed the inheritance tax threshold of £325,000 (known as the ‘nil rate band’) may benefit from a reduction in inheritance tax known as ‘taper relief’.
Queen Elizabeth is struggling to find a Christmas present online for Prince William, Prince Harry, Princess Kate and Princess Meghan this year and decides to make a cash gift to each couple of £5,000.00. As long as the Queen survives 7 years, there will be no inheritance tax consequence on this gift.
You can make gifts whilst your alive, but it is still important to make a Will to direct what happens after your death and there may be other options available to you to help reduce the inheritance tax liability payable on your death. Making a Will could be the best Christmas present you give to your loved ones as it provides everyone with a peace of mind!
For individual advice and assistance contact our Wills, Probate and Trusts Team to find out how we can help.
Charlotte Macalister TEP, Solicitor, Wills, Trusts and Probate