Maximize Lifetime Gift Allowances to Reduce IHT
As discussed in one of our earlier blogs, you can reduce the overall value of your estate by making the most of your Lifetime Gift Allowances. Thus, reducing your estate value and in return, reducing your Inheritance Tax (IHT) liability.
Lifetime Gift Allowances
Here is an overview of your gift allowances that you can maximize to reduce your IHT liability.
- You can gift up to £3,000 every financial year. This could be £3,000 to one individual or £1,000 to three individuals.
- If you didn’t make any gifts in the previous tax year, then you can carry that allowance forward by one year. For example, if you made no gifts in the 2017/18 tax year then you can carry forward that £3,000 to the current tax year. This would mean that you can gift up to £6,000 in 2018/19.
Wedding gifts are another great way to reduce your estate value. You can give presents up to the value of £1,000 to anyone or the cash. The allowance increases for children and grandchildren and are as follows:
- up to £5,000 per child; and
- up to £2,500 per grandchild or great-grandchild
- You can give small gifts up to £250 per person, to as many people as you want, providing you haven’t used another exemption on the same person
- You can make gifts from income. This must be from surplus income and must not affect your standard of living.
- Gifts to charities are exempt from IHT. As are gifts to political parties.
- Furthermore, if you leave at least 10% of your net estate to a charity, the remainder of your estate may qualify for a reduced Inheritance Tax rate of 36%.
Potentially Exempt Transfers (PETs):
- A potentially exempt transfer is a gift made during your lifetime that may be exempt from IHT if you survive 7 years.
- The gift can be of anything, of any value and to anybody. But, it must be an outright gift with no strings attached. Otherwise, it could be deemed as a Gift with Reservation of Benefit and can have IHT implications.
- If you die within 7 years of making the gift, then it will form part of your estate and may be subject to IHT.
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