There are various ways to gift that can reduce an inheritance tax (IHT) liability on death. Some are outright exemptions and others require to be claimed as part of the executry administration process. We always encourage our clients to keep accurate records of any gifting they undertake. By doing so, it will assist the administration process on death in making it more straightforward where lifetime records have been maintained.
Here are 6 IHT allowances/exemptions to consider: –
- Annual exemption – in every tax year (6 April – 5 April the next year), you are permitted to gift £3,000 exempt from IHT. If you have not gifted before, you can roll over one annual allowance therefore providing you with £6,000 in your first year of gifting. If you do not use your full £3,000 in any tax year the remainder can be rolled over (only once) to the next tax year and can be used after that year’s £3,000 allowance has been utilised. You cannot accrue multiple years of allowances. This is a useful allowance and funds used can come from either capital or income.
- Small gifts – you can gift up to £250 a year to any person. You can gift to as many people as you wish as long as the gift is up to £250. If you gift over £250 to someone, the exemption is lost for the whole gift.
- Gifts in consideration of marriage– to qualify for this exemption the gift must be:
- In contemplation of marriage; and
- Conditional upon the celebration of marriage.
Therefore, you must make the gift before the marriage takes place and it can only count for IHT purposes if the marriage actually takes place. The allowance available depends on the donor’s relationship to whom the gift is being made. Parents can gift £5,000, grandparents and other family members £2,500 each and any other person – a friend for example, up to £1,000. A gift to the parents of the couple to marry does not qualify – it must be a gift to the couple.
- Gifts out of regular income – for some, this is the most valuable exemption. It has to be claimed as part of the administration process and therefore it is prudent to keep clear records of your gifting if you wish to utilise this allowance. Gifts will be exempt if:
- they are part of your normal expenditure and part of a pattern of gifting;
- made out of income; and
- do not adversely affect your normal standard of living.
- Gifts to charities, political parties and registered housing associations – these gifts are 100% exempt for IHT purposes. It is important to make sure you check that the charity is registered in the UK as this exemption only applies to charities registered in the UK.
- Business Property Relief –(BPR) – relief is available at either 100% or 50% depending on the asset. The relief is only available on the business or business assets that have been owned for at least two years before death, and may also be available for shares held in a qualifying company listed on the Alternative Investment Market (AIM).
It is important to keep sufficient records, in particular for the gifts out of regular income allowance, which can be the most useful of allowances in mitigating IHT where large scale gifting is possible.
If you would like any further advice on gifting during lifetime then please contact any of the solicitors in the private client team. We will be happy to discuss these allowances/exemptions with you in more detail.
Sienna Sproson, Associate Solicitor
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