Gifts are treated in a number of ways for Inheritance Tax purposes. However, you only need to worry about making gifts if you think your estate – including the value of any gifts you make – might exceed the Inheritance Tax nil rate band when you die. If you think your estate may come over, the nil rate band. You must survive years from the date of the gift, for it to be fully exempt for Inheritance Tax purposes.
Below is the list of gifts that you may give during your lifetime:
Wedding gifts/ civil partnership ceremony gifts. These are exempt from Inheritance Tax, subject to the following limits:
£5,000 in cash or assets as a parent.
£2,000 in cash or assets as a grandparent and/or great grandparents
£1,000 in cash or assets from anyone else (other family member or friends)
However, in order for the gift to be exempt, you have to make the gift shortly before or on the wedding day. If for any reason the wedding is called off and you still give the gift after the wedding without having promised it first, the exemption will NOT apply.
There are simple methods of lifetime tax planning that are exempt from Inheritance Tax because of the type of gift or the reason for making it, and these include:
An annual exemption of £3,000 capital in each tax year can be made without being brought into account for Inheritance Tax purposes. This can also be brought forward for one year if unused.
Wedding gifts up to £5,000 depending on the relationship to the person getting married
Small gifts of up to £250 to as many people as you like in any one tax year (but you cannot give a larger sum or combine the gift with an annual allowance or wedding / civil partnership ceremony gift exemption).
“Regular expenditure out of normal income” gifts can be made free of inheritance tax if regular payments by way of gift can be shown to be paid from income without reducing the donor’s ability to maintain his or her usual standard of living.
You can make larger gifts to individuals which will be exempt from Inheritance Tax if you live for seven years after you make the gift. You can set up a trust in your lifetime but specialist advice would need to be sought to avoid tax traps. Estate planning is something you do for your family. Get it done, and you’ll feel better knowing that you’ve taken care of them.
You can give away up to £3,000 in total each tax year and it will be exempt from Inheritance Tax when you die. But if you don’t use any or all of your £3,000, you can carry this over to the following year, giving you up to £6,000 but if you don’t use it in that year, it can not be carried over again.
You are able to make small gifts of up to £250 to as many people as you like in each tax year. However, you cannot for example give £300 and claim that the first £250 of this amount is exempt. If you do give an amount to a person of more than £250 the exemption is lost altogether.
Please be aware that when you intend to use this particular exemption, you cannot use any of the other exemptions listed during that tax year for the same person.
Regular gifts or payments that are part of your normal expenditure:
Any regular gifts you make out of your net income, this does include capital you may have (i.e savings), are exempt from Inheritance Tax
You should be aware that for this type of gift to be exempt, you have to have enough income left following the gift to continue with your normal lifestyle
The types of payments are as follows:
Regular payments to someone
Christmas and birthdays, or wedding/civil partnership anniversaries
Life insurance policy premiums for you or someone else
You should be aware that as part of your normal expenditure, you have to have enough income left following the gift to continue with your normal lifestyle.
For more information on estate planning please fill out an enquiry form or call EAD today on 0151 735 1000.
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