Gifts to your family and loved ones

It’s important to know that there is no Inheritance Tax on transfers, whatever the value, between married couples or registered civil partners. Each person has their own allowances - and a choice of what to do with them. This means that you could reduce the value of your estate on which IHT can be levied.

These transfers are referred to as gifts, and there are many exemptions available as explained below.

Annual exemption

Everyone can give away £3,000, exempt from IHT, in any one tax year. It doesn’t have to go to one specified person, but the total must not exceed this total. Also, if not previously used, you could potentially backdate this one tax year so if effect you could gift £6,000 to begin with.

Marriage gifts exemption

Each parent can give a wedding gift of up to £5,000 to each child when they get married at anytime before the wedding day. If it is your grandchild, you can gift them up to £2,500 each and for other family members or friends you can give up to £1,000.

In addition, you can also make gifts utilising your annual exemption to the same person so potentially, as a parent, you could give your child up to £8,000 in the year in the year they are married (£5,000 marriage gift and £3,000 annual exemption). The same goes for your partner too.

Small gifts exemption

Any number of gifts to different people, up to the value of £250 each, can be made in a tax year. However, if an individual gift exceeds this £250 then this gift must be deducted from your £3,000 annual exception allowance instead.

Are there any other gifts you can make?

Over and above the allowances just mentioned, you can make unlimited gifts of cash, shares or other items of value - referred to as Potentially Exempt Transfers (PET) - and they will be deducted from your estate providing you live for seven years from the date made.

If you die within the seven year period you will still have to pay tax, however this can reduce after the first three years. This is known as ‘Taper Relief’.

It only applies to the part of the gift that is in excess of the nil-rate band (currently £325,000 if you are single or divorced or £650,000 if you are married / in a civil partnership or widowed) and after three years it will start to reduce the amount of tax you have to pay on the gift. After seven years it becomes exempt from IHT completely.

Taper Relief

 

Period of Years before death	% reduction (Tapering relief)	% of tax payable
0-3 years	Nil	40%
3-4 years	20%	32%
4-5 years	40%	24%
5-6 years	60%	16%
6-7 years	80%	8%
More than 7 years	No tax	0%

How to make a gift

There are four main ways of giving gifts, as explain below:

Direct Gift

This is a convenient and rewarding method of giving items or sums of money to beneficiaries for their immediate benefit.

Gifts to Trust

This method allows the placement of monies in a suitable investment, which is then wrapped in a Trust. You can choose who you want to be trustees and all, or amounts of it, can be distributed at your discretion. There are two types of Trust - Flexible Trust and Discretionary Trust.

Loan Trust

This type of plan could be suitable for those people who wish to take steps to mitigate IHT but still wish to retain access to their original capital. Any growth on the investment belongs to the trust and is therefore free of IHT whilst the original investment belongs to the investor and remains within the estate.

Discounted Gift Schemes

This is another method of giving money away (and is outside of the estate after seven years) but the person making the gift can also have access to a regular, predetermined income. In addition to this - based on a number of factors including age and level of income selected - there is usually an immediate ‘discount’ to IHT. This means that an investment into this scheme usually results in a saving in IHT from the moment the monies are placed in the plan.

For more information about gifts, simply call one of our specialists on 0800 137 832 or arrange to meet an Adviser today.

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Alternatively call:
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