Lifetime Gifts

Preserving wealth for future generations is often a concern, however your priority should be ensuring you have enough funds available to you during retirement to provide the standard of living you require.

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How do lifetime gifts work?

Once you have the appropriate finances in place you should start to consider your options for inheritance tax (IHT) planning.

Gifts made between a spouse or civil partner are free from inheritance tax. Allowances are also transferable to partners, meaning that when one partner dies their personal IHT allowance and nil rate residence band are passed on to the surviving partner.  This enables future beneficiaries to benefit from the couple's combined allowance and nil rate residence relief.

A couple is able to pass on up to £1,000,000 tax free providing the estate includes property valued at £350,000 or more which is being left to their descendants.

Exempted gifts

There are several gift exemptions that can also be used:

Annual exemption – You can gift up to £3,000 a year which will be exempt from your estate. You can also carry an unused exemption forward to the next tax year, raising the amount to £6,000 in the next year. You cannot carry forward any more than one year's annual exemption.

Wedding gifts – Up to £1,000 per person can be gifted as a wedding or civil ceremony present per person, £2,500 can be gifted to a grandchild and £5,000 to a child. 

Regular gifts out of income – Providing you are able to maintain your usual standard of living after making the gift. The gifts need to be regular and should deplete your capital.

Charitable and political donations - Gifts to charities and political parties are inheritance tax free.

The seven year rule

A lifetime gift is treated as potentially exempt for IHT purposes. Provided the donor survives seven years from the date of the gift, it will be excluded from their estate on death.

Taper relief is available where the donor survives at least 3 years  but this is only available to reduce the effective tax rate charged. As most gifts will be less than the nil-rate band, there would be no tax on the gift, and therefore, no taper relief. This will simply result in a reduction in the available nil-rate band to set off against the rest of the estate.

How does tapered inheritance tax relief work?

Years between gift and death % tax paid
Less than 3 40
3 to 4  32
4 to 5 24
5 to 6 16
6 to 7 8
7 or more

It needs to be remembered that the taper relief applies only to the tax payable and not the value of the gift.

Be careful when gifting non-monetary assets as this can create a Capital Gains Tax liability. Please take professional advice first.

If you are interested in becoming a client of Morris Crocker, contact us on 023 9248 4356 or alternatively you can complete the request a quote form opposite.

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I am a GP partner working in London. I have used Morris Crocker to produce my partnership and personal accounts for a number of years.The team at Morris Crocker are superb. Friendly, efficient and very knowledgeable. They have a very experienced team who have a huge amount of knowledge for NHS GP practices. As well as preparing my accounts and tax returns they provide additional services such as financial management. They have helped me on a number of business matters such as capital gains, budgets and forecasts. Pete and his team make things straightforward and easy to understand. They also helped us streamline the day to day bookkeeping by use of IT and have always been on hand for support and advice any time. I would not hesitate to recommend them as accountants especially to GPs. In the current NHS you need the best accountant that you can find who know what they are talking about. You will find that in the team at MC.  

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