What’s the maximum amount of money I can gift within the current Inheritance Tax (IHT) rules?
Many people I talk to believe that the maximum amount they can gift within a year without falling foul of the IHT rules is £3,000.
This is known as the annual gift exemption, but there are other allowances available to you to help reduce your IHT bill when the time comes.
For example, there’s usually no tax to pay on small gifts for birthday or Christmas presents, and you’re allowed to give larger amounts (up to £5,000 for a child) as wedding gifts.
One area that many people I meet are completely unaware of is the regular gifts out of surplus income exemption. This gives wealthier individuals significant scope for IHT planning.
I used to work for a company in Twyford that specialised in school fees planning. We used to tell the parents of the children how incredibly useful the grandparents could be if they could afford to pay the school fees.
What they were doing was making a regular gift out of surplus income because the fees were termly, and they clearly had the intention to continue because the child had so many more years left at school.
As a result, this money not only helps the grandchildren and their parents but is also immediately out of the grandparents’ estate for IHT purposes.
It’s also worth remembering that you can give someone as much as you like as a Potentially Exempt Transfer (PET). It’s then subject to the seven-year rule which means gifts made three to seven years before your death are taxed on a sliding scale called taper relief.
But if you survive for seven years the gift is completely out of your estate. Even if you’re worried about dying in this time we could set up a small life assurance policy for that seven-year period so that if you were to die there would be money available to pay the tax.
TIM EMBLETON
Time Financial Planning Limited is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
Estate Planning and Taxation advice are not regulated by the Financial Conduct Authority.
This is sponsored content
