Gifting is a well-known way to reduce the value of your estate over time in order to reduce an Inheritance Tax liability. Inheritance Tax is usually up to 40% on any assets over the nil rate band of £325,000.
What is the tax-free gift allowance?
Some gifts are only exempt from IHT if you make them during your lifetime. Whereas other gifts will be exempt whether they are made in your lifetime or on your death.
What gifts are immediately exempt from Inheritance Tax?
Each person gets an annual exemption of £3,000 in each tax year. This can be gifted to anyone and is immediately outside of the estate for Inheritance Tax purposes.
Additionally, you can gift any individual in a tax year £250 if they haven’t benefited from one of your other allowances.
What are other gifting allowances?
A parent can gift a child up to £5,000 towards the cost of a wedding free from Inheritance Tax. Grandparents can gift their grandchildren up to £2,500. The gift must be made before the wedding.
What gifts are exempt from Inheritance Tax after seven years?
If you make substantial gifts in your lifetime and survive for seven years after making the gift then usually the value of that gift will not be included in the value of your estate and will therefore be exempt from IHT. It is important to keep accurate record of the dates you have made gifts.
There is no limit to the amount of money or assets that can be gifted this way.
The amount of tax due on gift reduces on a sliding scale over the seven-year period and no tax is due after seven years.
What gifts are exempt from Inheritance Tax during your lifetime?
Gifts to a spouse or civil partner, during your lifetime or on death are exempt from IHT. Gifts to charities and political parties are also generally free from Inheritance Tax.
Start Inheritance Tax Planning today
The rules and allowances around gifting and mitigating Inheritance Tax are complex and can be subject to change. It is important that you seek financial advice in order to understand which allowances you could utilise.
Book a no-obligation meeting online or call us on 0117 973 0500.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.