Gifts and Inheritance tax

Inheritance Tax may have to be paid after your death on some gifts you’ve given.

Gifts given less than 7 years before you die may be taxed depending on:

●      who you give the gift to and their relationship to you

●      the value of the gift

●      when the gift was given

Each tax year, you can give away some money or possessions free of Inheritance Tax, therefore a good strategy to reduce IHT is to give money away before you die..

Gift

 Amount

 The detail

The seven-year rule for gifts

Nothing if over 7 years. Up to 40% if less than 7 years

You can gift any amount of assets with no IHT to pay if seven years pass without you dying. However, if you die within three years you will have to pay 40% above your nil-rate band, 32% after three years; 25% after four years; 16% after five years, and 8% after six years.

Annual exemption

£3,000 per year

You can give away up to £3,000 per year, divided between one or more people, without IHT applying at all.

Small gifts

£250 per year

You're allowed to give £250 per person per year to as many people as you like without IHT applying (as long as they haven't benefited from your annual exemption).

To help pay for a wedding

£1,000 to £5,000

You can contribute to someone's wedding, as long as you gift this amount before the wedding day and it actually takes place. You can give £5,000 to your child; £2,500 to a grandchild and £1,000 to anyone else.

Regular gifts from income

N/A

You can also give regular amounts away that you don't need from your income without IHT applying. You may have to show that this money was not needed to maintain your standard of living.

Gifting to a Charity

 

Any gifts made to charities are exempt from IHT. Also, If in your will you gift at least 10% of the ‘net estate’ at the date of death then IHT will drop to 36%.

However, there are some exemptions:

  • Gifts between married couples are free of IHT at all times regardless of amount and timings.

  • If you gift something but still benefit from it, it will still count towards the value of your estate. This is known as a ‘gift with reservation’. An example is giving your home to a relative but still living there rent free.

  • It is also extremely important that you keep a record of what you gave, who to, the value of it and when you gave it as it is likely to be called into question if you die within 7 years of doing so.  This helps prevent those you gifted too being shocked and surprised that they have to pay inheritance tax on gifts you’ve given to them.

    The Financial Conduct Authority do not regulate inheritance tax planning.

  • Tax treatment varies according to individual circumstance and is subject to change

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