The small gifts exemption might be small (as described and compared with other allowances) at £250, but in certain circumstances could be very valuable if used well.

The exemption is on gifts up to £250 per tax year to individuals. An important point to keep in mind is if the total value of gifts to an individual exceed this, even by £1 the allowance is lost, in which case the gift could begin to use up the annual allowance of £3,000.

In Stan's case he has very few relatives, so we won't be making much use of this allowance (can't win them all). However if an individual had a larger family with many grandchildren, nieces and nephews and even great grandchildren the overall value of this allowance could soon stack up. For example say you have 3 siblings, all of which have 3 children. You have 4 children, all of which have 3 children, what could you potentially give away IHT free each year using the small gifts allowance?

Nieces and nephews (9)x £250 = £2,250

Children (4) X £250 = £1,000

Grandchildren (12) X £250 = £3,000

Total value £6,250

Saving of IHT @ 40% £2,500

Based on this example, which isn't extreme when it comes to family sizes, a significant saving in IHT can be achieved each year and not to mention how popular it will make you with the family!

The example has focused on family members as it is the natural setting in which to make so many gifts but there is no restriction limiting the allowance to family, gifts to friends could also be made under the same exemption.

To date Stan has reduced his future IHT liability by £74,400.

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