Inheritance Tax Gifts – the smart way to pay less tax
Inheritance tax gifts are one of the strategies you can use to mitigate the Inheritance Tax due on your estate.
When you make an Inheritance Tax gift you effectively pass on part of your wealth to your beneficiaries, for no payment in return, and no tax to pay.
Planning ahead and using your annual allowances for IHT gifts can save you thousands of pounds. You can check how much you currently could pay in Inheritance Tax using our Inheritance Tax calculator tool or discuss your IHT liability now with one of our advisers.
Get IHT advice now by making an financial advice enquiry online or phone us on 0800 678 5929.
Gifts that are Inheritance Tax Exemptions
The gifts you can make to your children during your lifetime with no IHT liability are also known as Inheritance Tax exemptions. There are various kinds, all of which can help keep your wealth within the Inheritance Tax threshold and free of Inheritance Tax.
You can use your Annual Exemptions to gift up to £3,000 to your children every year. You can carry over unused amounts from last year’s allowance, 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, and must be used now, or lost.
Gifts can be made between spouses or civil partners during their lifetime, or upon death. These IHT gifts are known as Spouse Exemptions.
You can make Small Gift Exemptions of up to £250 per year, to any number of people. However, these gifts cannot be used in conjunction with the ‘Annual Exemptions’ above.
Wedding Exemptions are gifts to your children of up to £5,000 and your grandchildren £2,500 when they marry. These must be promised in writing before the event, to qualify as an IHT gift and avoid Inheritance Tax. If the wedding is called off, tax becomes payable on wedding exemptions.
You can combine your child’s £5,000 wedding gift with your £3,000 annual exemption, giving them £8,000. However, you cannot combine your annual exemption of £3,000 with a small gift exemption, to make £3,250.
Gifts that are part of your normal expenditure, and paid from income, are accepted as IHT gifts. These include things like assistance with college costs, or alimony or support payments.
We can also offer IHT advice on gifting your home to your children while you are still alive. This comes under the category of Potentially Exempt Transfers (PETs) as it does not become exempt until you have survived for 7 years after making the gift.
Moreover, if you wish to live in the property, you are deemed to continue to benefit from it, so that it becomes a tax-liable ‘gift with reservation’. The way to avoid Inheritance Tax in this situation is to pay your children a rent at current market rates, effectively becoming a tenant in the property.
One last point to remember is that record-keeping is crucial part of using IHT gifts. You must be able to provide the taxman with documentation of your IHT strategy – and keeping your documentation in order is another element of Principle First’s IHT advice.
Why hand your money to the taxman, when there are so many ways to avoid Inheritance Tax? Contact us for IHT advice now with an IHT advice enquiry or phone us on 0800 678 5929.
