We all know the Easter Bunny will soon be on his way to deliver Easter Eggs to us all. What you may not know is the Easter Bunny has taken advice on how best to deal with these gifts for Inheritance Tax (IHT)!
The Easter Bunny gives away millions of Easter eggs a year so why aren’t they caught by the IHT gifting rules? The general rule is any gift you make during your lifetime, to an individual, must be survived by 7 years so it doesn’t impact your estate on death for Inheritance Tax purposes.
Well, there are a few exemptions to this and the one that helps the Easter Bunny out is that of small gifts.
Small gifts
Gifts of up to £250 can be made by an individual to as many different people as they want every tax year. These gifts are completely exempt from Inheritance Tax so the Easter Bunny can gift Easter eggs to all the children of the UK and it doesn’t cause him a problem for IHT.
There are also other exemptions available:
Annual exemption
Every individual can gift £3,000 every tax year without giving rise to a charge to IHT. This exemption cannot be used on someone who has also received a small gift. You can also use the annual exemption for the previous tax year if you didn’t use it towards any gifts.
Normal expenditure out of Income
Any gifting made out of regular gifts of excess income will not be taxable for IHT. Usually, this would mean regular gifts of similar amounts to the same person out of income, but ensuring sufficient income is left available to maintain their normal standard of living. It is always best to get advice in respect of this exemption.
Gifts on weddings and Civil Partnerships
Lifetime gifts towards weddings and civil partnerships are exempt up to limits of £5,000 for children, £2,500 to grandchildren and further descendants and £1,000 towards anyone else.
Spouse/Civil Partners/Charity
Gifts to spouses and civil partners are completely exempt from IHT as long as you are both domiciled in England and Wales. Gifts to UK charities are also completely exempt.
Gifts made and survived by 7 years
As touched on above any gifts that you make to individuals and survive by 7 years are called Potentially Exempt Transfers and are exempt from IHT. There are occasions when these gifts can cause IHT if they are made within 7 years of a gift to a trust!