Gifts during your lifetime and inheritance tax

There is an annual gift allowance of £3000 which can be given to a family member inheritance tax free.

After this, if you have an estate over the inheritance tax threshold, you can give as much as you wish to your family and so long as you live for 7 years it will be inheritance tax free.

When the gift is made it is known as a Potentially Exempt Transfer

If you die within seven years, becomes a Chargeable Transfer.

You can also give as many gifts of up to £250 to as many individuals related or not as you wish so long as the person receiving the gift has not also  received a gift from within your £3000 allowance

You can give wedding gifts before the ceremony inheritance tax free as follows:

• Up to £5000 to a child

• Up to £2500 to a grandchild

• Up to £1000 to anyone else

Gifts to help pay the living costs of an ex-spouse, an elderly dependent or a child under 18 or in full-time education can also be exempt.

If you have enough income to maintain your usual standard of living, you can make regular gifts from your surplus income. 

Examples are

• paying into your child’s savings account

• paying a life insurance premium for your spouse or civil partner

• Grandchildren’s school fees

• Charitable donations

• Political donations

Remember you must not benefit from any gift given so;

If you gift your home to your child and then continue to live rent-free within it this will be disregarded as a gift.

If you do die within 7 years of making a gift the following tax applies:

For the first 3 years inheritance tax will be paid at the full rate of 40% on the gift.

If you die between 3 and 4 years after the gift was made the inheritance tax will be 32%

4-5 years it’s 24%

5-6 years its 16%

6-7 years it’s 8%

If you have owned a business for longer than 2 years and gift this, 50% or 100% tax relief is available depending on the type of business it is (you will need to speak to an accountant regarding what businesses qualify for what relief).

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