Did you know that gifting assets during your lifetime is a good way of decreasing Inheritance Tax (IHT)? HMRC provides several annual exemptions, which could make all the difference to your estate and beneficiaries. At Narrative Wealth, based in Wimbledon Village, London, our experts can talk you through the details. In the meantime, you can get the facts from our handy guide.
Gifts that are exempt from IHT
Every individual in the UK can give away £3,000 worth of gifts each tax year completely free of inheritance tax, plus an unlimited number of separate £250 gifts to different people. These two allowances, known as the annual exemption and the small gift allowance, are immediately exempt from IHT.
Annual gift allowance, small gifts and wedding gifts
Each tax year, you can:
- Give away a total of £3,000 in gifts without those gifts being added to the value of your estate for inheritance tax purposes. The £3,000 can go to one person or be split between several individuals. A married couple or civil partners each have their own £3,000 allowance, so together they can give away £6,000 a year. If you don’t use all or part of your £3,000 allowance in one tax year, the unused portion carries forward to the next year only. It cannot roll over any further.
- Give up to £250 to any number of people, completely exempt from IHT. However, you have to abide by the rules: the £250 limit is per recipient. A donor can give £250 to as many different people as they wish. However, the small gifts exemption cannot be combined with the annual exemption for the same recipient. Only one exemption applies to any one recipient per year.
- Gift money for a marriage or civil partnership. The rules: a parent of either party can give up to £5,000; a grandparent or great-grandparent: up to £2,500; one party to the marriage/civil partnership to the other: up to £2,500; and anyone else: up to £1,000. The gift must be made on or before the date of the ceremony. Gifts made after the ceremony are not covered.
Gifts to spouses, civil partners and charities.
- Transfers between spouses or civil partners are completely exempt from IHT. There is no cap on the amount, and the timing of the gift does not matter. Whether made during the donor's lifetime or on death (through the will), the transfer is fully exempt from IHT.
- Gifts to charities are also completely exempt from IHT. There is no cap. This applies both to any gift that you give in your lifetime or in your will. In fact, if you leave at least 10% of the ‘baseline’ amount of your estate to charity, the IHT rate on the rest of the estate is drops from 40% to 36%.
Now’s the time to find out more and we’re always ready to help. Get in touch with Narrative Wealth at our Wimbledon Village office, based in southwest London.