The Gift That Keeps On Giving
How tax-efficient gifting can save money on your estate
Gifts are liable for Inheritance Tax (IHT) if you give away more than £325,000 capital in the 7 years before your death and while for some of us this tax charge can be unavoidable, it can be significantly reduced through tax efficient gifting.
1. Annual Exemption. £3,000 of tax free money can be given away in any one tax year. Any unused annual exemption can be carried forward to the next year but only for one year. This can go in one lump sum to an individual or be divided in any which way you please. So if you haven’t made any gifts since before 6 April 2017 you could give away £6,000 now (or £12,000 as a couple) and make someone very happy!
2. Small individual gifts. On top of your £3,000 allowance for gifts, you can make any number of small gifts (up to £250 per person) free of IHT to your loved ones. However please note, you cannot give one of these to anyone to whom you have already given your £3,000 allowance.
3. Gifts for marriage and civil partnerships. There is no inheritance tax payable on gifts for weddings and civil partnerships as long as the gift is made on or before the registration of the marriage and to one or both parties. These gifts are tax free up to the limit of:
- £5,000 to a child;
- £2,500 to a grandchild (or great-grandchild); and
- £1,000 to anybody else.
4. Gifts from excess income. If you are fortunate enough to be in the position of having income excess to your needs then you can create a pattern of giving away the excess income with no need to survive for any minimum period thereafter for the gifts to fall out of your estate for IHT purposes. In order to claim this exemption after your death, your executors will need to provide relatively detailed information to HMRC. Consequently, good record keeping during your lifetime is very much recommended. Please ask your usual contact at Wansbroughs for more information in this respect.
5. Exempt beneficiaries. IHT rules for UK domiciled married couples or civil partners mean that you can make gifts between you with no IHT consequences. Gifts to qualifying charities are also immediately exempt.
6. Gifts for maintenance. If you have a relative who is dependant on you, such as a child under 18 or in full-time education, elderly person or a disabled or infirmed family member, any gift given to maintain their standard of living is exempt from IHT.
7. Exempt assets. If you hold assets which qualify for relief from IHT (such as business or agricultural assets), you may be able to gift them without IHT consequences. Please ask us for more information in this respect.
8. Larger sum gifts. As long as you plan to live for at least another 7 years (!), any gift you make, no matter the sum, is exempt from IHT provided you do not continue to benefit from the gifted asset once you have given it away. While one cannot predict an untimely demise, if the unexpected does occur within 7 years of making such a gift, your loved ones could still claim an exemption from IHT via taper relief if the gift exceeded your IHT nil rate band allowance.
However, there may be other tax consequences to a substantial gift, such as capital gains tax, and so professional advice should always be sought.
For more detail or to learn about more exemptions, why not have a chat with your usual contact at Wansbroughs to ensure that your gifts are as tax efficient as possible. Please contact your advisor at Wansbroughs on 01380 733300 or email firstname.lastname@example.org
Paralegal - Private Client
Last updated 19/04/2018
The contents of this article was written by Wansbroughs Solicitors in April 2018 and was intended for general information purposes only and shall not be deemed to be, or constitute legal advice. This article was posted with the permission of Wansbroughs Solicitors whose views are independent of Keith Montgomery Associates Ltd.