Inheritance Tax efficient Christmas Giving
As Christmas approaches, many of us are thinking about gifts for our loved ones. Why not combine this with some inheritance tax planning?
The Chancellor’s Autumn Statement on 22 November did not make and changes to inheritance tax, despite considerable speculation beforehand that it might be reduced or abolished. So we are still in the position of needing to think about how to reduce the potential tax burden for our families.
How does inheritance tax work?
Inheritance tax is charged when a person dies, and also in some circumstances when they make lifetime gifts. There is a threshold called the “nil rate band” which is currently £325,000 per person – for couples the combined amount is £650,000, and it is transferable between spouses/civil partners.
When a person dies, assets up to the value of their nil rate band pass free of tax. But if the value of that person’s assets exceeds the available nil rate band, inheritance tax is charged at 40%. However there are a variety of exemptions, reliefs and allowances which help to reduce this. For example, there is a further allowance of up to £175,000 if you have a house that you are leaving to your children or grandchildren. Transfers between spouses or to UK registered charities are generally exempt.
What allowances are there for lifetime gifts?
If you make a gift to another individual during your lifetime, generally it will be free of inheritance tax so long as you outlive the gift by at least 7 years. There are some conditions on this, for example anti-avoidance rules may apply if the person making the gift receive further benefits from the asset given away – this is complicated so you should seek professional advice on this.
You have an allowance of £3,000 which can be given away tax-free each tax year, regardless of whether you outlive the gift by 7 years. In addition, there is a further exemption for regular gifts out of your surplus income (again there are conditions on this, so you should seek professional advice), and an exemption for small gifts of up to £250 per recipient per tax year.
Whilst tax considerations might not seem very festive, Christmas gifts provide an opportunity to make use of your inheritance tax allowances and see your loved ones enjoying the benefit.
Should I make a Will?
Everyone should make a Will, to ensure that your assets end up with the right people, and that your estate can be wound up smoothly by your chosen executors. If you have made lifetime gifts to some of your children/grandchildren but not to others, you might want to include a clause in your Will to equalise and ensure that these gifts are brought into account. Wills can also include provisions to ensure that inheritance tax allowances, exemptions and reliefs are maximised.
How can Gardner Leader help?
Our friendly team at Gardner Leader can provide you with tailored advice on your inheritance tax planning arrangements and making Wills. Visit our Wills, Probate and Estate Planning page to contact one of our experts here.