Making gifts to your loved ones is a generous act, but without careful planning, it can have unexpected tax consequences.
Inheritance Tax (IHT) is a complex area that many people overlook, leading to potential financial burdens on their beneficiaries.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Key strategies to make gifts without triggering inheritance tax.
- Important exemptions and reliefs that can reduce IHT liability.
Gifts and Inheritance Tax: An Overview
When planning to give gifts, it’s crucial to understand how these might impact the inheritance tax on your estate.
Here are the key points to consider:
Valuing Your Estate and Gifts
Upon your death, the value of your estate, including any gifts made within the seven years prior, are assessed for IHT.
In some cases, even gifts made before this period may require consideration.
To ease this process, keep detailed records of all gifts, including those placed in trusts, and update these records annually.
Lifetime Exemptions and Reliefs
Several exemptions can help minimise the impact of gifts on your estate’s IHT liability:
- Annual Exemption: You can gift up to £3,000 each tax year without it being added to the value of your estate.
- Small Gifts Exemption: Gifts of up to £250 per person per tax year are exempt.
- Wedding/Civil Partnership Gifts: Gifts to a couple getting married or entering a civil partnership are exempt up to a certain amount.
- Gifts Out of Income: Regular gifts from surplus income, rather than capital, can be exempt if they do not affect your standard of living.
Effective Use of the Nil Rate Band (NRB)
The NRB is your tax-free allowance for IHT, currently set at £325,000 and frozen until 2027-28.
Making effective use of lifetime gifting can help ensure that your estate does not exceed this threshold, potentially saving your beneficiaries from a 40% IHT charge.
Unused NRBs can also be transferred from a predeceased spouse or civil partner, providing further relief.
Residence Nil Rate Band (RNRB)
The RNRB is an additional allowance of £175,000 per person, also frozen until 2027-28, applicable when passing your main residence to direct descendants.
For estates exceeding £2 million, this allowance tapers off, making pre-death gifting strategies important to stay below this limit.
Gifting Strategies to Consider
- Charitable Donations: Gifts to registered charities can reduce the IHT rate on your estate.
- Trusts: Setting up trusts can be a strategic way to manage gifts, though professional advice is crucial to avoid potential pitfalls.
Summary
Navigating the complexities of gifting and inheritance tax requires careful planning and awareness of the exemptions and reliefs available.
Properly managing these aspects can significantly reduce the tax burden on your beneficiaries.
For personalised advice on managing your inheritance tax and making tax-efficient gifts, get in touch with Help Me Legal.
Our team, and our partnered accountants, are here to guide you through every step.
With personalised advice, we’re there to ensure your assets are protected, and your wishes honoured.
Contact us using the form here to know more. Alternatively, call us on 01772 282768, or use our 24/7 WhatsApp line at +447816848188