In current times, sharing wealth and helping loved ones financially is becoming even more of a priority as demands mount on the budgets of families. As such, passing on wealth during a lifetime can reward the giver with the satisfaction of seeing the benefits being enjoyed. Whilst financial gifts can provide great fulfilment, lack of familiarity with the rules on gifting can also result in tax penalties.
There are some basic transfers which are free from inheritance tax (‘IHT’) implications:
- Gifts of any value between UK domiciled spouses and civil partners are free from IHT.
- Gifts for National Benefit, such as gifts to museums and libraries are free from IHT.
- Gifts to charity of any value are also not subject to IHT.
Gifts to individuals that do not fall within the above categories may also be free from any IHT implications, as long as they meet the following conditions:
- Total gifts made by one person within each tax year total less than £3,000. You can also carry forward any unused £3,000 allowance from the previous financial year, making financial gifts of up to £6,000 possible within one tax year.
- Small gifts of up to £250 can be made to any number of people in each tax year, provided that the total to any one person does not exceed £250. If it does, this exemption does not apply and all gifts would decrease the abovementioned £3,000 yearly allowance.
- Money can also be gifted, tax-free, in the event of a marriage or civil partnership. The value of the gifts can be up to £5,000 from each parent, £2,500 from each grandparent and up to £1,000 from any other person.
If gifts are made, beyond the £3,000 allowance, this can potentially be exempt from IHT, as long as the donor (being the person making the gift) survives the gift by 7 years. However, if the donor dies within 7 years of making the financial gift, this will reduce the IHT free allowance that is available upon death (known as the nil-rate band).
If you are considering making a gift, or would like to know more about how this might impact your estate from an IHT perspective, then please do get in touch with one of our Private Client specialists.