Inheritance Tax Exemptions, Inheritance Tax Gifts
Inheritance Tax is a tax most-loved by the taxman, because it brings him billions of pounds in revenues every year.
Much of that tax could have been avoided, with the help of our quality, independent financial advice! Considering that Inheritance Tax is levied at 40%, where a liability exists, Inheritance Tax planning can save you thousands. or even hundreds of thousands. of pounds.
Check your Inheritance Tax (IHT) liability using our IHT Planner or call 0800 678 5929 now.
There is more to inheritance planning than considering matters that will arise after your death. There are many ways to begin the inheritance process, while you are still around in person! You can pass on your wealth to your spouse, children and wider family today, using IHT Exemptions, Potentially Exempt Transfers (PETs), and gifts.
Gifts that are Inheritance Tax Exemptions
By making gifts of various kinds to your children during your lifetime, you are ‘draining’ wealth out of your estate before you die. This is a prudent strategy, as it can reduce the possibility of an Inheritance Tax liability. There are a number of gifts that are not subject to Inheritance Tax. These are known as Inheritance Tax Exemptions.
Spouse Exemptions – these are gifts made between spouses or civil partners during their lifetime, or on death.
Small Gift Exemptions – you can gift up to £250 per year to any number of persons in each tax year. However, these gifts cannot be used in conjunction with the ‘Annual Exemptions’ below.
Annual Exemptions – each year you may gift up to £3,000 to your children. You may draw upon last year’s allowance if you did not already take it up, in which case you could gift up to £6,000 this year. However, last year’s allowance can be taken no further than this year – it is a case of ‘use it or lose it’.
Wedding Exemptions – you may gift your children £5,000 and your grandchildren £2,500 as once-off wedding gifts.
Combinations are possible – in your child’s wedding year you can combine the £5,000 wedding gift with your £3,000 annual exemption to make a tax-free gift of £8,000. However, you may not combine your annual exemption of £3,000 with a small gift exemption to make £3,250.
You may also treat as IHT-exempt gifts that are part of your normal expenditure, and paid from income on which you have already paid income tax. These might be regular gifts or payments made from your salary. However, they must be of a reasonable size (i.e. not too large) in order to be deemed part of your ‘normal’ expenditure. Typical examples might include maintenance payments to your spouse, or to a former spouse or partner, or to relatives who are dependent on you due to health or infirmity. This can also include your children who are either under 18 or in full-time education.
Find out more about IHT Exemptions by making a Financial Advice Enquiry or calling 0800 678 5929 now.
With all these gifts, it is important to keep documentation and records as proof of your transactions.
Potentially Exempt Transfers (PETs) and the 7-year rule
In addition to the gifts named above, there are a number of gifts classed as potentially exempt, because they are not immediately and automatically free of Inheritance Tax. Find out more about potentially exempt transfers here
