Wills, probate & trusts
Go on - make Gordon’s Christmas!
By
Dec 9, 2009, 17:02

Most of us like to be generous with family, friends and favourite charities at Christmas, without giving much thought to depredations of the taxman.

However those with income in excess of their needs are likely ultimately to pay tax twice on that income. For higher rate tax payers this mean a tax rate of 80 per cent or more with NI contributions coming out of earned income. In other words, a handsome present for Mr Brown!

How does this work? Well, having already paid income tax at 40 per cent, any income not spent is accumulated as capital. On death where children are beneficiaries and the estate is over £325,000 (£650,000 in some cases) inheritance tax is paid at the rate of 40 per cent on the excess.

Regular gifts of genuinely surplus income are completely exempt from inheritance tax without any limit or conditions.

Even if you haven’t established a regular pattern of giving, if you demonstrate your intention to give regularly, you can claim the exemption. It pays to keep a record of that intention and of the gifts that you make.

As the exemption may need to be claimed on death it is also helpful to have a note both of income (your tax return information is a good record of this) and, more difficult for your executors, your outgoings for the years that the gifts are made. A quick look at the relevant tax form (IHT403, available on the HM Revenue and Customs website) lists the information that is required.

Why make a gift to government coffers rather then to a recipient of your own choosing?

For advice, contact partner Jenifer Gillman jenifer.gillman@willans.co.uk