Capital Transfer Tax, Estate Duty, Probate Duty, Succession Duty and Legacy Duty are all previous names of something that you and I know as "Inheritance Tax” in the UK.
It’s first iteration, named “Probate Duty” from 1694 made any estate worth more than £20 liable to tax, a stark contrast to modern inheritance tax rules, which are generally only liable on an estate worth more than £325,000.
Despite most estates in the UK not being liable to inheritance tax, here, we will explore the impact that Gifts can have on your Inheritance Tax Bill.
Gifts
Gifts can be an effective way of minimising inheritance tax (IHT) liabilities.
A gift refers to exaclty that, a gift granted from you to other individuals or organisations that can sometimes be exempt from IHT, provided they fall within the relevent guidelines.
Gifts To Your Spouce
If you are married or in a civil partnership, you can often pass your entire estate onto your spouce without any liable inheritance tax.
However, this has variables, and is dependent on the position of your Nil Rate Band, a topic we have explored in depth in “The Nil Rate Band Explained”.
Read the article to explore how your NRB can be used.
NOTE - if you are unmarried, this rule does not apply, and may lead to you paying Inheritance Tax.
Gifts To Your Children And Family
Gifts do not necessarily have to be granted when you die, as you can gift any amount or type of asset to any family member you wish while you’re alive.
These “lifetime gifts” are viable exemptions from inheritance tax. However, any gift you make has a 7-year timeframe where it is held in status as a “Potentially Exempt Transfer” if you die within 7 years of making the gift.
If you die within those 7 years, it will become a chargable transfer and form part of your taxable estate.
It is important to note that the gift must truely be given, and you can have no rights to the asset for it to be a viable exempt transfer.
Your Annual “Gift Allowance" Each individual has an annual gift exemtion of up to £3,000 a year, and this can be carried forward up to one tax year, allowing up to £6,000 in gifts to be granted provided none had been given in the previous two years. Any gift that fals outside of these boundaries may be liable to inheritance tax.
What’s Definitively Tax-Free
Any gift worth less than £250 is tax-free, and you can make these gifts to as many individuals as you like, provided they are not the beneficiary of the entire £3,000 annual allowance yoy can gift.
Similarly, wedding gifts are effective for Inheritance Tax purposes, giving you an allowance of £5,000 if gifted to a child, £2,500 if gifted to a grandchild or great-grandchild or £1,000 if gifted to a different relative or friend.
Gifts To Charity
Similalry, gifts made to a majority of UK charities during your lifetime or on your death are exempt from IHT, as well as some established EU charities.
Business & Agricultural Reliefs
There are some assets which recieve special relief from IHT; more particularly, their value is reduced which results in less tax being due.
These largely refer to property which is connected to a business or agricultural propery.
Actionable Advice
The above text has been put together by experts in this subject matter, but every case is different and should not be considered advice. If you are seeking actiomable advice on inheritacne tax matters, call us or email us today.
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