How do gift allowances work?
Once you do have the appropriate finances in place you should start to consider your options for inheritance tax planning.
The 7 Year Rule
While making a gift more than 7 years before death can significantly reduce the amount of inheritance tax due on an estate, beneficiaries can still gain from tapered relief should the deceased pass before that time.
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 |
0 |
While this is one of the main reliefs available on inheritance tax there are also a number of exemptions that can be used alongside the 7 year rule and tapered allowance.
Gifts between a spouse or civil partner are free from inheritance tax
Allowances are also transferrable to partners, meaning when one spouse 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 couples combined allowance and nil rate residence relief.
By 2021 a couple will be able to pass on up to £1,000,000 tax free providing the estate includes property valued at £350,000 or more:
Exempted Gifts
There are several gift exemptions that can also be used.
Annual exemption – You can gift up to £3000 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 upon death.
Wedding gifts – Up to £1000 per person can be gifted as a wedding or civil ceremony present per person, £2,500 can be gifted to a grandchild and £5000 can be gifted to a child.
Routine gifts from income – Providing you are able to maintain your standard of living after making the gift.
Charitable and political donations - Gifts to charities and political parties are inheritance tax free.
For more information visit our inheritance tax page.
If you are interested in becoming a client of Morris Crocker, contact us on 02392 484356 or alternatively you can complete the request a quote form above.