Inheritance tax planning: a little each year…

A major UK newspaper reported on the recent results of a survey that was carried out to establish the public’s understanding of Inheritance Tax (‘’IHT’’) a tax which, is fair to say, continues to be one of the most unpopular and controversial taxes at the Chancellor’s disposal.

Rather shockingly, it was reported that only 1 in 10 of the 4,000 survey respondents knew how much cash they could gift during their lifetime before risking a charge to inheritance tax.

Without knowing what the future holds, it is more than understandable why many are reluctant to pass wealth to younger generations for fear of leaving themselves short in their later years. Indeed, our advice to clients is to not let the ‘tax tail wag the dog’ and that potential IHT savings should not be made at the expense of financial security.

Nevertheless, making regular smaller gifts in your lifetime can be an effective method of reducing the value of your estate to mitigate future IHT liability.

Below are some examples:

The ‘annual exemption’

You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate when assessing your estate’s liability to IHT on your death.

If you don’t give away £3,000  in one year, you may carry it forward for the following tax year and use it then in addition to your allowance for that year. But you can only combine two years you cannot save up several years’ worth of allowances and use them all at once.

Each person has this allowance so a couple can each make use of their own individual allowances.

The small gift allowance

Gifts of no more than £250 to individual recipients per tax year are excluded from inheritance tax (and are not counted toward the £3000 annual gift exemption). This is particularly useful for those with large families. For example, someone with 10 grandchildren could give each of them £250 annually and the gifts would not be taken into account in calculating the value of their estate. Again the small gifts exception exists for individuals so both grandparents could give £250 to each grandchild if they wished.

Small gifts of up to £250 are not counted toward the £3000 annual exemption – although you cannot combine a small gift with the annual exemption and give an individual £3,250. If you did and were to die within seven years of making the gift then £250 (i.e. the part in excess of your allowance) of it would be added back into the value of your state for the calculation of IHT/use of the allowances available to an estate on death.

Exempted gifts

Each tax year, you can also make gifts to individuals for certain occasions, without running the risk of IHT being payable on your death. For example, you can make wedding or civil partnership gifts of up to £1,000 per person, £2,500 for a grandchild or great-grandchild and £5,000 for your child.

Again, these gifts are exclusive of the annual exemption and small gift allowance.

Gifts to charities are exempt from IHT, as are gifts between spouses. Gifting between spouses can be a useful way to split the risks of lifetime gifts. If your spouse has no money in their own name they could give away but you have more than you wish to keep you could, for example, transfer money to them for them to pass on making use of their (otherwise) unused allowances.

Any gifting in excess of the above exemptions and allowances is likely to be classed as a potentially exempt transfer (‘’PET’’) which in order not to affect your estate’s IHT position on your death will need you to survive 7 years from the date of the gift.

We recommend you obtain professional advice before making substantial gifts as there may be other tax and/or practical implications to consider.

The Trusts & Estates’ Team at Hart Brown are able to provide specialist inheritance tax planning advice that is tailored to your circumstances. We are also able to help in all areas of wills and probate, including drafting a will, making a lasting power of attorney and dealing with the administration of a trust or an estate.

 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

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Jordan Page

Senior Solicitor, Trusts & Estates

Jordan is a Solicitor specialising in Wills, lasting powers of attorney and the administration of trusts and estates. He is based in the Trusts &...

Senior Solicitor, Trusts & Estates

Jordan Page

Jordan is a Solicitor specialising in Wills, lasting powers of attorney and the administration of trusts and estates. He is based in the Trusts & Estates department in Guildford.

Jordan studied law at the University of Southampton, graduating in 2013. Whilst completing his LPC on a part time basis, Jordan worked in the firm’s quality and compliance department as the firm’s Chief Internal Auditor, before commencing his training contract in April 2016.

Having previously undertaken trainee roles in the Family and Residential Property departments, Jordan qualified into the Trust & Estates department where he completed his training.

What does Jordan regard as his specialism?

"The administration of estates and inheritance tax planning in equal measure. My experience of administering estates and calculating inheritance tax liabilities has provided me with valuable insight into how this particularly unpopular tax applies. This type of work has given me the tools to advise clients as to the steps they can take in advance to mitigate their exposure to inheritance tax. I pride myself on providing legal advice in a straightforward manner, cutting through the legal jargon. I always endeavour to work as efficiently as I can in order to provide the best level of service."

Jordan frequently receives great feedback from his clients:

"Hart Brown comes up trumps yet again"

“I appreciate your efforts and thank you for helping me to understand the process!”

"Thank you for your help, your ears will be burning, as I have been ringing your praises!!"

“Thank you for all your input, help and time - it has been much appreciated.”

“May I take this opportunity to thank you for your hard work and professionalism - it is a testament to all those who worked so hard on this case that it looks as though it will all be settled by the first year Anniversary. Quite remarkable!”

"I would like to place on record my appreciation of the efficient and quick service you have provided, particularly as I wished to have the new will in place before my departure on holiday."

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