Inheritance Tax: Gifts

Inheritance Tax (IHT) is a tax paid on your estate after you have died. It is a concern for many people who want to ensure their loved ones receive maximum benefit from any inheritance. IHT rules are complicated but with careful planning, tax liabilities can be lessened.

One option to consider is gifting. If you do not need the gift (money or property) then you could consider giving it away. Usually, any gifts would be included with your estate if you died within 7 years, but this depends on who you give the gift to, the value of the gift and when it was given.

Gifts between spouses or civil partners are exempt from inheritance tax (as long as they live in the UK permanently).

Gifts to charities or political parties are also exempt from inheritance tax.

There are several allowances available which allow you to give away some money or property free of inheritance tax:

• £3,000 Annual exemption: Each tax year you can give away a total of £3,000 worth of gifts without them being added to the value of your estate. This can be to one person, or you can split the £3,000 between several people. You can carry forward any unused annual exemption to the next tax year - but only for one tax year.

• £250 Small gift allowance: You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.

• Gifts out of income: You can make regular gifts out of your income as long it does not affect your standard of living and that it is paid regularly (monthly). There are a few technicalities around what counts as income, so if you decide to go down this route then please check with your Prosperis adviser for a bit more guidance.

• You can give up to £5,000 to a child, £2,500 to a grandchild or great-grandchild and £1,000 to any other person on the event of their marriage or civil partnership, each tax year.

It is important to keep detailed records of any gifts made. It may be necessary for your executors (the person or people legally responsible for carrying out the wishes of someone in their will) to report the gifts when dealing with the administration of your estate. We would really recommend maintaining a good record of the gifts that you give, including what you gave and who you gave it to, the value of the gift and when you gave it.

If you want to know more about ways to reduce your Inheritance tax bill or discuss any of the other points raised, please contact your Prosperis adviser on 01423 223640 or advice@prosperis.co.uk if you require any further information.