How do Inheritance Tax gifting rules work?
10 December 2024
Question by Boring Money reader
Hi,
Could you please clarify if one can give cash gifts for birthdays, etc, as well as gifts of £250 annually to one person under current IHT rules for the tax year 2024/2025 and beyond?
Thanks!
Answered by Jason Moss
Hello,
As you correctly stated, one can make as many gifts up to £250 per person each tax year (known as the ‘Small Gift Allowance’). The government does also state that ‘Birthday or Christmas gifts given from regular income are exempt from Inheritance Tax’.
There is also the ‘Annual Exemption’ which allows you to gift up to £3,000 to one person, or this can be split between multiple people. If you haven’t utilised this allowance in the previous year, it can be carried forward for one year. For a couple, this means that if neither have utilised this allowance in the previous year, they could potentially gift up to £6,000 each this year (£3,000 from last year and £3,000 from the current year).
Beyond the above allowances, you can also make regular payments to another person to help with living costs, described by the government as being ‘normal expenditure out of income’. This is separate to the gifting allowances and there is no limit to how much you can give, as long as the payments meet the beneath criteria:
The payments are affordable for you after meeting your usual living costs
They are paid from your regular monthly income
Examples the government give for normal expenditure out of income are: rent for a child; contributing into a savings account for a child (under 18); or providing financial support for an elderly relative.
The latter may not be suitable for birthdays, but it can be useful for other regular payments to assist children.
Further details on the rules and allowances set by the government can be found on this webpage.
The rules are complicated, therefore I would always recommend contacting an Independent Financial Adviser to discuss any areas further and/or to seek advice.
The above information is purely to help you think about your options, it does not constitute as financial advice or a recommendation. The above information is based on the current rules (as of 2024/25).
