Gifting in inheritance planning
Gifting is a great way to reduce the liability of inheritance tax, this could include money, personal effects like jewellery, property or stocks and shares. When planning inheritance it is important that you utilise gifting to reduce the amount of money forming part of your estate in your will. There is no inheritance tax to pay on gifts between spouses or civil partners, as long as they live in the UK permanently and are legally married or in a civil partnership with you. You also don’t have to pay inheritance tax on gifts to charities.
Outside of these rules you can also gift up £3,000 every tax year, which is known as your ‘annual exemption’. Not many people know you can use this annual exemption on one person or split £3,000 up to multiple people. You can also carry any unused annual exemption forward to the next tax year, for one tax year. On top of that we would take a look at additional gifts you can make of up to £250 per person each tax year, as long as you have not used another allowance on the same person. Birthday and Christmas gifts are also exempt from inheritance tax and you can give a tax free gift to someone who is getting married or starting a civil partnership. This can be £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to any other person. Plus you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
There is no tax to pay on gifts if you live for 7 years after giving them. If you do pass after gifting beneficiaries will be taxed on a sliding scale known as taper relief. Yes there is a lot of jargon in our industry that we will help you to cut through! Ofcourse, taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.
There are so many other options you can use with gifting to mitigate inheritance tax like payments to help with another person’s living costs which could enable you to support your child by paying their rent.