Every individual gets an allowance of £3,000 per year that they can gift to whoever they choose free from inheritance tax. This gift is immediately outside of your estate. It is important to remember that £3,000 is the total allowance, not £3,000 per beneficiary. This means a couple can gift £6,000 a year.
Can I carry over my gifting allowance?
If you do not use your gifting allowance of £3,000 then you can carry it over for one tax year.
Can I gift more than £3,000 per year?
It is possible for a parent or grandparent to gift amounts over the £3,000 annual gifting threshold.
You can gift any amount that you choose, however if you pass away within 7 years of making the gift then inheritance tax will still be due (at a reduced rate).
What is gifting from excess income?
An under-utilised allowance which many people do not know about is ‘gifting from excess income’. This allowance is immediately outside of your estate for inheritance tax purposes.
This allowance involves gifting an amount from your excess income subject to three conditions: the gifts must be regular (monthly or annually), the gifts must be from excess income and the donor’s standard of living must not be impacted.
For example, if you receive income from employment or pensions of £3,000 per month and you only spend £1,000 per month then you can gift up to £2,000 per month from your excess income using this allowance and it is immediately outside of your estate for inheritance tax purposes.
This allowance is complex and it is important that everything is fully documented as HMRC may question it after you pass away.
You could consider using a discretionary trust
Finally, more complex planning opportunities could be considered. Depending upon the amounts involved, the parents could consider a discounted gift trust arrangement and professional advice is recommended. It is also important to consider other implications of making gifts, such as capital gains tax on gifting chargeable assets, or income tax levied on parents who receive income arising from gifts to minor children.
Seek financial advice
Inheritance tax mitigation is a complex area and takes careful planning. It is important that you fully understand all of the rules and allowances before you make any decisions.
A financial adviser at Four Wealth Management can help you to reduce your inheritance tax liability.
Book a no-obligation meeting online or call us on 0117 973 0500. The first meeting typically lasts around 1 hour and can be at your home address, at one of our offices or on zoom/by phone. The financial adviser will then write to you outlining your options and ways you can reach your short and long term financial goals.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
Trusts are not regulated by the Financial Conduct Authority.
