Festive giving

Even at this seasonal time of year, gifting comes with tax strings attached. So, whether you’re planning a generous gift for a family member, or you’re an employer rewarding staff for their hard work, it’s worth doing so tax efficiently.

FOR INDIVIDUALS

We’re seeing a growing trend for gifting money to young adults, or ‘Millennials’, in families to help with rising living costs. The main concern here is Inheritance Tax and using your tax-free exemptions.

Small gifts

Up to £250 in any tax year can be made tax-free and to as many people as you wish. The exemption is separate to the annual exemption which covers the first £3,000 of gifts made in any tax year.

Gifts out of income

Gifts can be made from your income, tax-free. However, to qualify, the gift must be part of your normal expenditure and, taking one year with another, be made from surplus income so that your current standard of living is maintained.

Pensions

You can open a pension for each of your children, and for each child you can save up to £2,880 tax efficiently per year. The government will automatically top up the pension pot by 25% (e.g. turning £2,880 into £3,600). Contributions over £2,880 are allowed but receive no tax refund.

Contributions into a child's pension have no impact on your tax status. If your child has their own relevant UK earnings, then they may be able to receive a tax refund on higher amounts.

FOR BUSINESSES

The Christmas Party

The cost of the Christmas party (and indeed other annual functions) is generally an allowable tax deduction for the business. However, the deduction won’t apply if you are a sole trader and you plan to treat only you and your partner to a night out!

A Christmas party shouldn’t be a taxable benefit for employees, so long as it’s open to all staff and the cost per head isn’t more than £150 (includes any transport or accommodation provided). This limit applies on a cumulative annual basis, so consideration is required if you’ve already thrown other staff parties.

Gifts to employees

Gifts are usually an allowable tax deduction for the business.

Under £50: The employee themselves may be taxed under benefit in kind rules. However, if the gift does not exceed £50 in value and is not cash or a voucher, it is tax exempt.

Over £50: the employee will normally be taxed on the whole gift amount. However, the detail is slightly complex, so further advice should be sought if this is the case.

Christmas bonuses

Unfortunately for the employee, Christmas bonuses in the form of cash and vouchers will always be taxable. However, for the employer the cost is treated in the same way as normal salary and is tax deductible for the business.

For further information and guidance, please contact Calvin Healy on 01225 325580, or email ch@richardsonswift.co.uk.

The guidance given herewith is for general use and is made with consideration to current law and prevailing best practice. It is therefore essential to take specific advice before pursuing any particular course of action.