Gifts and exemptions from inheritance tax

Post by: Emma Van der Sluis 27/11/2018 0 comments 170 views

One of the easiest ways to avoid inheritance tax on your estate is to give away assets while you are still alive.  However, there are limits on the amounts that you can give away each year.

You can make gifts to family at any time, and provided you live longer than 7 years from the date of making the gift, there will be no inheritance tax to pay on the gift.

During the 7 year period – this gift will be known as a ‘potentially exempt transfer’ or PET.  There are however other considerations to take into account when making significant gifts, such as the ‘deprivation of assets’ rules, more information can be found here:

You are able to give away £3,000 worth of gifts each tax year, without them being added to the value of your estate, and this is known as the annual exemption. You can also carry over any unused exemption to the next tax year, but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

Regular gifts made out of post-tax income, which don’t affect your quality of life, are also exempt. There are various conditions which need to be met, such as proving the intention of the gifts, and actually making regular payments rather than setting money aside. Grandparents could, for example, use it to pay for things like grandchildren’s school fees.

The rules for this exemption are complex – for example, these gifts must be regular, so you need to be committed to keeping up with making these gifts.  It’s best to speak to a professional for specific advice first if you want to use this exemption.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

There is no limit to how much and how often you can give to a charity without incurring Inheritance Tax.

You could also get some relief on other types of tax such as Income Tax, when you do this.

If you leave at least 10% or more of the ‘net value’ of your estate, it’s possible to reduce the rate of Inheritance Tax on some assets from 40% to 36%.

Help

More information on inheritance tax and gifts can be found here: 

If you have any concerns about inheritance tax and whether your estate is likely to be taxable or would like advice from a member of our team, we have offices in Newark, Sleaford, Lincoln, Grantham, Boston or Spalding where a member of our team would be happy to help.

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