What a gift…?!

Please note that this News item is not maintained, and reflects the law as at the date of publication or update.

In this article, Partner Cara Grant considers inheritance tax efficient gifting and how out of date the allowances are.

The ‘seven year rule’ for inheritance tax efficient gifting is fairly well known.  If you make a gift and survive the date of the gift by seven years, there will usually be no inheritance tax consequences.

Slightly less well known, are the cash gift exemptions, such as making an annual gift of £3,000 (total) and the small gift allowance of £250 for each recipient.  However, the level of these exemptions was set over 40 years ago and so their use, in real terms, is limited.  If the £3,000 annual gift allowance had kept up with inflation, it would be closer to £11,000 today, and, whilst the small gifts might be gratefully received, much less can be purchased for £250 today than 40 years ago.

Other gift exemptions, limited to the occasion of a marriage, have also failed to keep up with the times.   You can gift £5,000 to a child, £2,500 to a grandchild (or great grandchild) or £1,000 to any other person.  With the cost of weddings these days often reaching (or exceeding) £20,000, these gift allowances have become rather a drop in the ocean.

There is a further exemption which is ‘regular gifts out of income’ which can be useful for people with excess income, but there are strict rules around claiming this exemption and advice should be sought.

With inheritance tax payable at 40% on the value of estates in excess of available allowances, the gift exemptions may have little effect.  Increasing property prices and therefore wealth means that more and more people are caught by the inheritance tax net.  Estate planning advice should therefore be sought to ensure that maximum reliefs are claimed when making gifts, whether within the exemptions or for making larger gifts.  Wills should also be reviewed to ensure that maximum reliefs are claimed so that they are as inheritance tax efficient as possible.

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