Christmas is a time for giving, and maybe also a time for planning your inheritance as we look ahead to a new year. If you wish to limit the amount of inheritance tax which will be owed to HM Treasury when you die, then there are various steps which you can take which are perfectly legal.
‘One option, if you can afford to do so, is to give away money and assets during your lifetime,’ explains Dee Benians, partner and private client lawyer at Hughes Solicitors in East Sussex.
‘The value of any gifts which have been made more than seven years before your death will be deducted from the total value of your estate before inheritance tax is calculated.’
As with anything related to tax, there are complex rules relating to various allowances, so it is important to take professional advice, but here are a few options to consider.
Personal gifts
Gifts to your spouse or civil partner can be as extravagant as you wish, just as long as they live in the UK permanently. If you are not married or are not permanently resident in the UK, then we can advise you.
Inheritance tax is not payable on small gifts made out of your normal income and which are known as ‘exempted gifts’, so you can also give Christmas or Birthday gifts of up to £250 in cash to as many people as you would like, not just to your close relations.
Annual exemption
Everyone has an annual exemption from inheritance tax, often called the ‘gift allowance’.
You may give away assets or cash up to a total of £3,000 per year without incurring inheritance tax. So, a couple can give away up to £6,000 in total per year to their children or grandchildren.
The annual exemption period runs from 6 April to 5 April so, if you have not reached this limit yet and you have cash to spare, then Christmas is a good time to take advantage of this tax exemption. You can also carry forward any unused allowance from last year.
Regular giving from income
If you have more income than you need, you might wish to commit to a regular gift, such as paying into a monthly saving account for a child. It is important that the giving comes out of your income (not capital) and follows a regular pattern of spending. HMRC will look for evidence of intention to make regular gifts over a period of time so this does need careful documenting.
Supporting a charity
You can give away any amount to a charitable cause without incurring an inheritance tax liability on it.
Also, if you leave more than 10 per cent of your estate to charity in your will, then the rate of any inheritance tax payable on the rest of your estate could be reduced to 36 per cent (from the usual 40 per cent).
How we can help
If you wish to start giving money or assets away, then it is a good idea to talk it through with a lawyer to ensure that you are not tripped up by the complex rules, and you can achieve your objective in the most tax-efficient way.
There are also further important considerations particularly around care-fee planning and your individual domestic and financial circumstances should be considered very carefully before gifting.
We can help you to document your wishes, and you will need to keep records of how much you give, who you give it to and when. This will make it clear for you executor when they need to calculate the level of inheritance tax after you have died.
For more information about gifts and inheritance planning, please contact our wills and probate team in Heathfield on 01435 890 101 or email info@hugheslaw.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.