Christmas Tax Update

by Adam Marlow

Christmas Tax Update

Many were expecting the chancellor to announce changes to inheritance tax (IHT) in his Autumn Budget. However, like capital gains tax (CGT), the rules have remained broadly the same as last year. 

That means that each tax year individuals may make gifts of up to £3,000 in total and that amount is not included in their cumulative total of gifts for IHT. Even if the £3,000 annual exempt amount is exceeded, provided it is an outright gift to an individual, there would be no inheritance tax payable provided the donor survives for 7 years. 

Note that the gift of an asset other than cash may also give rise to a capital gain and CGT may be payable where the asset has increased in value. However, if you give away a business asset such as shares in your trading company it is possible to make a claim to hold over the gain so that no CGT is payable. 

We can of course advise you on the procedure to follow.

Let's have a party

Last year many businesses put on a “virtual” Christmas party event and HMRC agreed that would be acceptable in order for there to be no taxable benefit for the employees involved. 

There continues to be no taxable benefit for employees provided that all staff are invited, and the cost does not exceed £150 a head, inclusive of VAT.

If you have also had an annual summer event then provided the combined cost of the two events is no more than £150 a head then there would be no taxable benefit in kind. If, however, the summer event cost £80 a head and the Christmas party £100 a head only one event would qualify for the exemption.

Remember that certain gifts to staff at Christmas are also tax-free if structured correctly. Employers are allowed to provide directors and employees with certain “trivial” benefits in kind tax-free. This exemption applies to small gifts worth no more than £50 to staff at Christmas or other occasions.

Trust Planning still available

Another tax planning strategy that is still available is the CGT holdover relief. This relief currently enables a non-business asset to be transferred without paying CGT. The relief applies where the transfer is subject to inheritance tax, but where the value transferred is no more than the £325,000 IHT nil rate band the transfer of the asset can take place without IHT or CGT being payable.

For example, Colin, a higher rate taxpayer, wants to gift his adult daughter Liz an investment property worth £300,000. The property cost him £100,000 a number of years ago. If he were to transfer the property to Liz directly there could be up to £56,000 CGT payable on the £200,000 gain. If the property is transferred to a trust for the benefit of Liz then the transaction would be immediately chargeable to IHT but covered by the £325,000 nil rate band. The resulting gain could then be held over so that no CGT is payable. 

At a later date, the property could be transferred from the trustees to Liz providing another opportunity to hold over the capital gain. 

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