family business man with two kids

Inheritance Tax considerations

‘Tis the season to be gifting

Nick Parkinson, Manager, Private Clients
14/12/2021
family business man with two kids

As we enter the festive period, which is synonymous with family time and the exchanging of gifts, you may be planning to make a gift to a loved one and wonder how this will be dealt with from an Inheritance Tax (IHT) perspective.

With that in mind, we have included below a brief summary of the lifetime gifts that can be made that are exempt from IHT – and if applicable, the value of the gift immediately falls out of your estate for IHT purposes.

Now may be an appropriate time to see if you are utilising these exemptions where possible, or to structure future gifts accordingly.   

Lifetime gifts that are exempt from IHT

There are a number of lifetime gifts that are exempt from IHT, included below.

  1. Regular gifts out of income – if you have sufficient disposable income, you can make regular gifts out of income. These gifts will be exempt from IHT provided they have no detrimental impact on your capital and standard of living.
  2. Gifts to spouse/civil partner – gifts between married couples and civil partners are not subject to IHT. The only exception here is if your spouse or civil partner is not domiciled in the UK, in which case there is a cap of £325,000.
  3. Gifts up to £3,000 – you can make gifts of up to £3,000 in any tax year and this will be covered by the IHT annual exemption. Any unused annual exemption can be carried over to the next tax year, however it can only be rolled-over once.
  4. Gifts up to £250 – small gifts worth up to £250 per person are also exempt from IHT. There is no limit on the number of small gifts that can be made during a tax year.
  5. Gifts to charity – gifts to UK charities or are also tax-exempt.
  6. Gifts on marriage – you can gift up to £5,000 to your child on their marriage. This limit is reduced to £2,500 for grandchildren, or £1,000 for any other person.

What if my gift does not fall within one of the above exemptions?

If you make a gift exceeding £3,000 and it does not fall within any of the above exemptions, it is likely you have made a potentially exempt transfer (PET), in which case you would need to survive at least seven years for it to completely fall out of your estate.

Where can I find more information about IHT generally?

For further support regarding IHT more generally, please visit our Inheritance tax hub and/or get in touch with your usual Crowe contact who will be happy to discuss.

 

Insights

Donating to charity and a UK resident paying tax at more than 20%, consider making the payment under Gift Aid so both you and the charity benefits.
The different types of gifts you can make to charity and the tax benefits and consequences of doing so.
Have you made the most of your annual allowances? It is your last chance to take advantage of the tax planning opportunities in advance of 5 April.
Donating to charity and a UK resident paying tax at more than 20%, consider making the payment under Gift Aid so both you and the charity benefits.
The different types of gifts you can make to charity and the tax benefits and consequences of doing so.
Have you made the most of your annual allowances? It is your last chance to take advantage of the tax planning opportunities in advance of 5 April.

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Ross Prince
Ross Prince
Partner, Audit
Midlands