Associate solicitor Patrick Brennan, in our leading Probate, Tax & Trusts team, explains the basic rules when it comes to Inheritance Tax (IHT) and making gifts.
Individuals can make a gift to their spouse or civil partner, registered charities and political parties free of Inheritance Tax (IHT).
Every individual also benefits from an annual exemption of £3,000 per year for gifts to other individuals. In certain circumstances, the previous year’s allowance can also be utilised, meaning that gifts up to £6,000 in any one tax year may be free of IHT.
Gifts relating to weddings and civil ceremonies can also be made. Up to £1,000 can be given to a relative or friend, £5,000 to a child and £2,500 to a grandchild or great grandchild.
Finally, gifts to a maximum of £250 per individual, to an unlimited number of recipients, can also be made if another exemption has not already been applied to that person.
Larger gifts, also known as potentially exempt transfers, can be made but may become subject to IHT at a later stage in the event that the donor of the gift dies within seven years of making it. The donor may not benefit from the money or assets gifted, or IHT may still apply.
If the individual making a gift remains alive seven years after the gift was given, no IHT is payable. If they were to pass away before that period, the gift is included in their estate, using up some of the estate’s tax-free allowance.
In the event that a donor has made gifts that exceed the tax-free allowance available to their estate, tax may be due from the recipients of the gifts.
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.