Taxman can boost your seasonal giving
QUESTION: With Christmas |imminent, what is the tax position in regards to gifting money to my family or to a charity?
ANSWER: The question you ask is an interesting one, particularly in relation to charitable giving.
In 2008, many have experienced financial hardship, yet when we consider our plight relative to some countries, we realise that our hardship bears no relevance to what suffering some people endure on an ongoing basis.
This time of year offers, for many of us, the opportunity to make a difference to the lives of people we don’t personally know by making a financial gift to the various charitable organisations, set up to impact the lives of those who are less fortunate.
The most efficient way to do this is via a gift aid scheme, and all registered charities will be able to offer this.
If you are a taxpayer in the UK, then this will further enhance the gift you make by the reclamation of basic rate tax.
In effect this means that for every £80 donated, the charity is able to reclaim a further £20 from the government.
If you are a higher rate tax payer then you can personally benefit from getting a further tax incentive when you complete and submit your tax return for the current year.
This in effect means that if you pay tax at the top rate, for an ultimate net outlay of £60, the charity can benefit to the tune of £100. What a great way to give this Christmas!
There are no limitations on how much you gift to charities, and the gift can be out of capital and or income, as stated earlier the only thing to bear in mind is that the tax breaks are there as long as you are a UK taxpayer.
In addition, any gifts that are made fall outside of your estate for inheritance tax purposes immediately.
Again, of considerable benefit, for those whose assets, will ultimately be subject to a further 40% tax on death.
If you pay tax at the top rate, for an ultimate net outlay of £60, the charity can benefit to the tune of £100.
In relation to gifts to family, again there is no limit as to what can be given however there is no income tax benefit or uplift on this occasion.
Money can be passed to any family member (or anyone for that matter) from capital or income, and will be treated as being tax free in the hands of the recipient.
This is simply because it is assumed that the donor will have paid tax on the monies before the gift was made.
If the gifts are to be effective as part of some inheritance tax planning strategy, then there are limits as to what can be given away.
Each person can gift up to £3,000 annually and those gifts will be treated as falling outside of your estate immediately.
If you haven’t used last year’s allowance then it is possible to give away up to £6,000.
If you are married, then this effectively means that a couple could gift up to £12,000 without any inheritance tax consequences.
As well as this annual allowance there is what is known as small gift allowances.
This entitles you to gift up to £250 to as many people as you like.
So if you chose to gift monies this year to family or charities, make sure you do so with as much help from the Her Majesty’s tax man as possible.
Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact email@example.com or (028) 9022-1010.