Inheritance Tax: The gift that could keep giving

Published by Guy Hilton on 13 June 2024

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Between April and August last year HMRC collected £3.2bn in Inheritance Tax, which was around £300m higher than the in the same period the previous year.

With the asset levels continuing to increase, the IHT tax free levels are set to remain frozen until 2027/28, which could result in many more having to consider the potential impact. 

Individuals have a nil rate band of £325,000, with married couples potentially benefiting from £650,000, meaning that up to this figure estates are not subject to IHT. The excess is then taxed at 40%. There is also the residence nil rate band, which, subject to certain criteria being met, adds a further £175,000 per person (£350,000 for married couples) to your estates value.  

So, in totally you could potentially have up to £500,000 before any IHT is levied (£1m for married couples). 

Where do gifts fit into this? 

A gift may consist of money, household or personal goods, stocks and shares, property or land. Gifting between spouses or civil partners does not attract any IHT, providing they permanent UK residents. There is also no IHT to pay on gifts to charities or political parties. 

Many will be familiar with the 7-year rule with gifting, usually with larger sums to try and reduce the value of assets, but there are some ways to gift money/assets which do not attract any IHT or 7-year ruling which could be considered if you wish to make gifts but on a smaller scale. 

  • Annual Exemption – you can gift £3,000 without it being assessed for IHT. This can be one gift to one person or a number of gifts to a number of people, so long as the total does not exceed £3,000. If you have not used this in the previous tax year, then you can carry forward this allowance. 
  • Small Gifts – you can make as many gifts of up to £250 per person as you wish each tax year so long as you have not used another allowance on the same person. 
  • Weddings/Civil Partnerships – You can gift sums to anyone who gets married or starts a civil partnership. These sums are, £5,000 for your child, £2,500 for your grandchild or great-grandchild and £1,000 to anyone. Notably, these can be combined with any other allowance except the small gift allowance. 
  • Gifts from Income – You can make regular payments from your income so long as you can afford the payments after meeting your living costs and that you pay these amounts from your regular monthly income. Again, you can combine this allowance with any other allowance except the small gift allowance. 

Well planned and timed gifts may not just be gratefully received, but may also assist you in slowly reducing the value of your estate over time and the potential Inheritance Tax liability. 

To discuss estate planning further please contact our Financial Planning team on +44 (0) 330 124 1399 or provide your details on our online enquiry form

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation. 

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