One potential strategy for managing inheritance taxes and transferring wealth to future generations involves the option of bestowing monetary assets or properties on family members or close acquaintances. Nevertheless, it is imperative to be aware of some aspects pertaining to the act of gifting and its implications on Inheritance Tax. This article aims to present a concise summary of gifting and Inheritance Tax, encompassing the permissible recipients of gifts, the allowable gift amounts, and the implications of retaining benefits from the gifted assets.
The act of transferring monetary assets or property to acquaintances, relatives, or philanthropic organisations during one’s lifetime is a straightforward method to mitigate the burden of Inheritance Tax. Certain gifts made during one’s lifetime may be exempt from taxation upon death, including contributions made to a spouse or civil partner. Typically, the exclusion of a gift from the value of an individual’s estate for the purpose of Inheritance Tax occurs when said donation is made seven years prior to the individual’s death. The topic of gifting can be intricate; hence, it is advisable to get guidance from a qualified expert as part of one’s estate planning process.
What is a gift?
A gift can include:
- Money
- Household and personal goods such as furniture, jewellery or vehicles
- Property or land
- Stocks and Shares listed on the LSE
- Unlisted Stocks and Shares owned for less than 2 years prior to death
Who Can I Give Gifts to?
Gifts to a spouse or civil partner are typically exempt from taxation; however, this does not apply to unmarried partners or cohabitants.
If you wish to leave gifts to other family members or associates, you should plan in advance to determine the most tax-efficient method. Annual Allowance refers to the inheritance tax exemption of up to £3000 per year. You may carry over your exemption amount to the following fiscal year if you have not used it, but you may only do so once. For example, if you do not use any of your allowance in 2021, you can give up to £6,000 in 2022, but you cannot give £9,000 in 2023.
Small Gifts
You may give small gifts of up to £250 per recipient, such as birthday or holiday gifts, unless another exemption has been used for the same individual.
Wedding Gifts
Additionally, there is an exemption for wedding gifts, the quantity of which depends on your relationship to the couple. As a parent, you can give up to £5,000, as a grandparent or great-grandparent, up to £2,500, and as anyone else, up to £1,000.
Regular Payments
There is no limit on how much you can give if you make reoccurring payments to support another person’s living expenses, provided that:
You can afford the payments after meeting your own living costs
You can pay this from your regular income
This can include paying a child’s rent, contributing to a child under 18’s savings account, and providing financial support to an elderly relative.
Retained Benefits
You cannot grant someone something if you will continue to enjoy its benefits throughout your lifetime. The most frequent instance is when a parent gives their property to their child but continues to live there rent-free until their death. In such a circumstance, the property will still be included in the estate for Inheritance Tax purposes, and it may also be considered for Care Fees.
7-Year Rule
Unless the gift is part of a trust, no gift tax is due if you survive seven years after giving it.
If you pass away within seven years of making a gift, Inheritance Tax may be owed, but the rate of tax depends on when the gift was made. The term for this is tapering alleviation.
