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Inheritance Tax (IHT) and Gifting Strategies

Inheritance Tax (IHT) can be a concern for many, but the reality is that only a small fraction of estates—about one in 20—are subject to it.

Navigating its complexities can be intimidating but there are planning opportunities available – we came across an article on this subject in the Radio Times last month, and though it would be a useful one to share.

Gift Allowances and Exemptions

How much can you give away without it being part of your estate upon your passing? Gifts made within the last 7 years of your life are typically included in your estate, although there’s a tapering relief if you survive for at least 3 years after making the gift. To safeguard gifts from inclusion in your estate, you need to survive for 7 years after making the gift!  Gifts include money, but also personal goods such as jewellery.

Giving to Family

If you’re a grandparent looking to support your grandchildren (or children) financially, certain allowances can be utilised. You can gift up to £3,000 annually, which doubles to £6,000 this year if no gifts were given in the previous tax year. This £3,000 limit encompasses all gifts given within the tax year. For instance, two children could each receive £1,500 (or up to £3,000 each if no gifts were made last year). Additionally, a separate rule allows for up to £250 a year to be given to any number of people, provided they haven’t received any portion of the £3,000 main gift limit.  Birthday or Christmas gifts that you give from your regular income are exempt from Inheritance Tax.

Special Occasion Exemptions

Weddings can be celebrated with IHT-free gifts of £5,000 to your child, £2,500 to a grandchild, and £1,000 to anyone else.  A wedding gift allowance can be combined with any other allowance, except for the small gift allowance.

Income Gifting

Moreover, regular gifts from surplus income that isn’t needed for personal expenses are entirely exempt from IHT. For instance, if your annual retirement income were £40,000 but you only spend £25,000 on living expenses, you could choose to gift the surplus £15,000 as a monthly allowance of £1,250—either to one person or shared—without any IHT concerns.

Other tips

The person who deals with your estate will need to work out what gifts you have in the 7 years before your death – you should therefore keep a record of what you gave and who to, the value of the gift, and when you gave it.  https://www.gov.uk/inheritance-tax

Source: This idea for this article was taken from Paul Lewis’ ‘Your RT: Money’, published in the Radio Times 11-17 May ’24 edition.

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