End of Year Tax Tips: Make Use of Your Gift Allowance | moneyfacts.co.uk

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Michael Brown

Content Writer
Published: 21/03/2022

With the end of year tax season approaching on 5 April, have you thought about maximising your gift allowances?

The end of the tax year is almost here, so have you considered using your gift allowances? Below is a recap of how your gift allowances work, and how you can use them before the end of the tax year.

Consider your £3,000 gift allowance

Everyone can gift a total of £3,000 a year without it being subject to taxation.

Furthermore, if you left this allowance untouched last year you can add it onto your allowance for this year. This means some can potentially gift £6,000 for this tax year.

Small gift allowance

Added to your £3,000 annual allowance, everyone is entitled to an additional small gift allowance of £250.

This tax allowance can be passed on to as many individuals as you want.

However, it is important to note that you will not be able to combine with your other gift allowance. In other words, if you have already gifted one beneficiary £3,000 you will not be able to gift them your £250 small gift allowance too without incurring tax charges.

Wedding gift allowances

In addition to these allowances, the Government has made tax exemptions for wedding gifts. The amount you can gift someone tax-free varies depending on your relationship to those getting married or entering a civil partnership.

If you are a parent, you can gift the bride or groom up to £5,000 while grandparents can only gift £2,500 tax-free. Friends and other relations will only be able to gift £1,000 before incurring tax charges.

All gifts need to be made before the wedding or civil partnership takes place and evidence that the marriage does exist needs to be provided.

Inheritance tax thresholds for 2021-2022 tax year

If you exceed your annual tax-free allowance of £3,000 then these assets may be subject to inheritance tax after your death.

There is an inheritance tax-free allowance on inherited estates of £325,000 for this year. This has remained the same since the 2010-2011 tax year and is more commonly referred to as the “nil-rate band”.

The estate can include the value of any vehicles, properties, possessions or savings you may inherit after the deductions of debt and funeral costs. As discussed in a previous article , pensions are exempt from inheritance tax laws. Instead, you may be liable for income tax. 

It is also worth noting that this tax-free allowance is increased if the estate includes property that is being passed on to a direct descendant. This transferrable allowance currently stands at £175,000 and has been in place since 2017. For many families, this means the nil rate band will be £500,000.

If you do inherit an estate valued over £325,000 then the difference will be taxed at 40%.

Inheritance tax laws can become complicated. This is why we recommend you seek professional advice from a financial adviser before you submit your tax returns.

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