Updates

Christmas is over, but that doesn’t mean the gifts need to stop!

HMRC have recently conducted a review of people’s gifting behaviour and the findings are surprising. There’s lots of interesting statistics about who is giving, to whom and how much.  However, for me, the most interesting section of the report was where it highlighted that people’s knowledge of some areas of inheritance tax rules is high, whilst in other areas it is relatively low, particularly in relation to gifting.

Most people are aware of the ‘seven year rule’, but in brief, during your lifetime you can make an outright gift to another individual or to a specific trust (such as a bare or disabled persons trust). These types of gifts are known as potentially exempt transfers and, provided you survive seven years, the gifts become exempt. However, if you died within seven years, it is then no longer potentially exempt and becomes chargeable, and needs to be included in the estate for the inheritance tax calculation.

Whilst alive, you also have a £3,000 ‘gift allowance’ a year. This is known as your annual exemption. This means you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for Inheritance Tax (IHT) purposes. Any part of the annual exemption which is not used in the tax year can be carried forward to the following tax year. However, it can only be used in the following tax year and can’t be carried over any further.

You can also give as many gifts of up to £250 to as many individuals as you want, although not to anyone who has already received a gift of your whole £3,000 annual exemption. None of these gifts are subject to Inheritance Tax.

You can also make a gift in consideration of marriage. In this case, if the gift is to be effective for inheritance tax purposes, it has to be made before, not after, the wedding and the wedding has to happen, and it has to be:

  • given to a child and is worth £5,000 or less,
  • given to a grandchild or great-grandchild and is worth £2,500 or less, or
  • given to another relative or friend and is worth £1,000 or less.

Following the pre-Christmas election, it’s also worth remembering that donations to a qualifying political party are an exempt gift!  Or maybe you’d prefer it if your favourite charity benefitted?

There are of course lots of other allowances and considerations when looking at inheritance tax planning and your individual circumstances and wishes will be paramount when deciding on the best route.  If this is an area you would like to understand further, please get in touch with us to discuss in more detail.

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