Inheritance tax-free gifts in the UK: what you can give without paying IHT

1. The first £3,000 given in any tax year (by each of you individually).

If the previous year’s exemption was not used fully then the amount remaining can be carried forward, but only up to £3,000. In other words the carry forward is limited to one year.

2. Gifts not exceeding £250 can be made to any one person who has not benefited from gifts made as in example one, above.

These gifts are not taken into account in arriving at the £3,000 limit.

3. Gifts made from income.

Regular gifts (i.e. by standing order) made out of income (after tax) and which would otherwise be saved or spent as disposable cash.

Such regular gifts must not affect the person making the gift’s standard of living. There is no fixed minimum period. As these gifts are made out of disposable income the amounts and the payees may vary.

4. Gifts for the “maintenance education or training” of the donor's child.

Obviously these types of gifts can be made until the child attains 18 but also up until “full-time education” or training ends.

5. Wedding and civil partnership gifts.

Lifetime gifts on the occasion of a marriage or registration of a civil partnership are exempt up to certain limits (section 22, IHTA 1984). The amount of the limit depends on the relationship of the donor to the couple, as follows:

• Each parent can give £5,000.
• Each grandparent (or remoter ancestor) can give £2,500.
• Either of the couple can give to each other £2,500.
• Any other person can give £1,000.

The gifts can be made to either party of the marriage or civil partnership, or to the couple jointly. The gifts can be outright, or in trust (provided that only the couple, their issue and certain other close family members can benefit). The gift must take place on or before the ceremony and must be conditional on the ceremony taking place. The exemption is not available if the ceremony does not take place.

These include any gifts of value over the annual exempt amount.

PET’s during any period of 7 years are added together.

On the Donor’s death, the value of gifts made within the previous 7 years is first of all set against the Donor’s Nil Rate Band or the balance of it after previous gifts (those immediately subject to IHT).

If the Nil Rate Band is exceeded, later gifts are taxable at the full IHT (40%) rate as part of the Donor’s Estate.

Gifts which therefore exceed the annual exempt limit and made within the 7 years before death have to be reported to the Revenue when an Inland Revenue Account is required to be submitted on death.

Apart from the 7 year rule explained above you should be aware that if Lifetime Gifts are made then you no longer own the asset.

That also means that if you have a made a gift of property or cash to your children then :

1. should they (be married and) subsequently divorce the value of that asset (if not already dissipated) would be taken into account in any divorce settlement.
2. should they be self-employed and their business fail then the value of the gift could be claimed to offset any debts of the self-employment.

CGT would be assessed on your children on the sale of your their share in your property (i.e. on the death of the survivor) on the basis that they also own their own properties.

Insurance policies:

• There is a possibility that some types of Policy could be written in Trust.
• Ordinarily policy proceeds are payable to the Estate on death.
• However, after completion of a Declaration of Trust policy monies may become payable to the Trustees of the Policy on production of the Death Certificate.
• The Trustees would then usually pay the proceeds to the beneficiary stated in a letter of wishes to the trustees.
• The Policy monies do not then form part of the Estate as at the date of death the deceased has no beneficial interest in the policies or their proceeds