Annual gift allowance overdue for an increase

The annual gift allowance of £3,000 has been frozen for 40 years.

Taxpayers only saved £30 million in inheritance tax (IHT) through gifting last year, according to research from UHY Hacker Young. The figure would be higher if the annual gift allowance had kept up with inflation.

The annual gift allowance allows taxpayers to make gifts of £3,000 each year without incurring IHT. That’s been the allowance for the last 40 years, however, UHY estimates the figure should be £11,760 had the allowance kept up with inflation.

Neela Chauhan, a partner at UHY’s London office, said that it was surprising to see the system remain unchanged for 40 years.

“It is a useful way to cut IHT but it should be a much bigger allowance,” Ms Chauhan said.

“Taxpayers now get a far worse deal than they did when it was first introduced. Back in 1981, you could buy a brand new car with a £3,000 gift. Today, it wouldn’t even come close.”

Ms Chauhan said an increase in the tax relief on gifts was long overdue.

Taxpayers can also make use of a small gifts exemption, which allows individuals to make unlimited gifts of £250 each year, as long as they are given to different recipients.

Like the annual gift allowance, the small gift exemption hasn’t been updated since 1980. UHY estimates it would be £1,096 had it kept pace with inflation.

The amount saved in IHT through gifting only accounts for 0.6 per cent of the £5.3 billion that HMRC brought in through IHT last year, according to UHY’s data.

Source Financial Accountant click here to read more.

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