‘Generous grandparents can get caught out!’ How to avoid tax bill this Christmas

Inheritance tax explained by Interactive Investor expert

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With just over a week to go until the big day, experts are reminding Britons of the rules on how much they can give and when, so that all their hard-earned cash doesn’t end up going to HM Revenue and Customs (HMRC).

Sean McCann, chartered financial planner at NFU Mutual said there are plenty of gift allowances in place for IHT, but generous grandparents could still get caught out if they’re not careful.

He said: “You can give away up to £250 per recipient and up to £3,000 each tax year without having to worry about inheritance tax.

“You can give away larger amounts free from inheritance tax, provided the gifts are made from your income, they are regular and don’t impact on your normal standard of living.

“If you make other large or one-off gifts, they can become subject to inheritance tax if you don’t survive seven years.”

Additionally, Mr McCann has come up with some great tips for anyone looking to make the most of cash gifts this festive season.

He added: “Anybody with children aged between 18 and 40 who are saving for a house deposit may want to encourage them to put any cash presents they receive into a lifetime ISA.

“You can invest up to £4,000 a year and get a 25 percent increase from the government on top.

“Toys will come and go but a Junior ISA could lead to something more lasting, like a house deposit, a university fund or money to enjoy a gap year.”

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He also recommended making the most of stocks and share ISAs because these could be even more financially appealing.

Mr McCann explained: “If you’re investing for the long term, a stocks-and-shares Junior ISA gives the potential to beat the low returns currently available on cash savings.”

“Everybody can receive £2,000 of dividends from shares each year tax free.

“If you receive more than £2,000 in dividends, you can transfer shares to your spouse or civil partner tax free, so that they can make use of their £2,000 tax free allowance.

He said that this could be an attractive option as dividend tax is increasing in April.

“Dividend Tax is increasing by 1.25percent in April, making it even more appealing for married couples and civil partners to gift shares or investments rather than socks this Christmas.”

However, it’s important that Britons don’t get caught out again and end up having to pay Capital Gains Tax.

He explained: “You can transfer stocks and shares to your spouse or civil partner free of capital gains tax but giving shares or property to anyone else, including children or a common law partner, can trigger an unexpected Capital Gains Tax bill.”

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What’s the Capital Gains Tax allowance for 2021/22?

The capital gains tax allowance in 2021-22 is £12,300, the same as it was in 2020-21.

This is the amount of profit Britons can make from an asset this tax year before any tax is payable.

Britons could be eligible to pay CGT on personal possessions worth £6,000 or more, property that’s not their main home, shares or business assets. If in doubt, it’s a good idea to get independent financial advice.

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