The tax reliefs and implications of giving gifts at Christmas

‘Tis the season of goodwill to all, and at LWA we’re giving you all the information you need on the tax benefits and implications that apply to giving gifts to your employees and to your family over the festive season and up to the next tax year. Read more in our blog below!

Could we have a real Christmas party this year?

Last year many businesses (except allegedly a certain government department…!) 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.

Christmas gifts of up to £50 per employee are also tax free

Remember that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their 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, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

Christmas is the time for giving

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.

Regular gifts out of your income are tax efficient

One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s income. Inheritance tax is designed to tax transfers of capital so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT.

The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with a suitable spreadsheet.

Contact our helpful elves!

Our friendly tax team at LWA are available all year round to offer bespoke advice for your corporate or personal tax queries. If you have a specific question, please do not hesitate to contact our Tax Manager, Nickie Antley-Slater via mail@lwaltd.com, or you can call one of the team in Manchester on 0161 905 1801 or in Warrington on 01925 830 830.

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