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Christmas gifts and inheritance tax - an adviser's tips

Chartered Financial Planner answers one of the main questions he's asked during the festive period.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

During the holiday period one of the questions I’m asked most frequently is, "what are the IHT implications of making gifts to my family?"

This is a complex area, so it’s a good idea to review your planning regularly.

This article isn’t personal advice. If you’re unsure of the suitability of any investments for your circumstances, please contact us for personal advice. Remember tax rules can change and any benefits depend on personal circumstances.

Find out if you could benefit from the expertise of an adviser

Common IHT exempt gifts

Most of us are aware that we can make some gifts without incurring an inheritance tax charge.

One of these is £3,000 each year, which can be given to anyone you choose.

This allowance can be carried forward for one year if it’s not used, so if you didn’t use it last year you can give away £6,000 this year.

There are additional gifts like this that can be made on special events, such as marriage, as well as donations to charities and political parties.

On top of this, you can make a gift of £250 each year to as many people as you like. This can work well for grandparents with lots of children and grandchildren.

Download your guide to saving IHT

Lesser-known IHT exempt gifts

There are also lesser-known gifts you can make. One of the most overlooked is unlimited gifts from surplus income.

For this exemption to apply you’ll need to establish a pattern of gifts. The gifts have to be made from excess income and you should be able to show they don’t affect your standard of living.

Our Financial Advisers frequently work with their clients on maximising tax-efficient income to use this valuable exemption.

Find out if an expert could help you maximise tax efficient income

Potentially exempt transfers

Any other gifts not covered by the above examples are Potentially Exempt Transfers (PETs). They’re 'potentially' exempt as you need to survive seven years for them to become IHT-free.

So, how much can be given away without incurring an immediate inheritance tax charge?

Well, in theory, there’s no limit, so a considerable sum (even the majority of your assets) could be passed on via PETs. If you don’t survive seven years, a gift exceeding your nil rate band (currently £325,000) could be taxed. The rate of tax is reduced on a sliding scale should you survive between three and seven years.

If you’re considering substantial gifts you should seek financial advice.

Find out if you could benefit from the expertise of an adviser

Keeping accurate records

Making a record of any gifts made and, importantly, the exemption you are claiming, will help your executors administer your estate.

Our advisers can help you to record gifts appropriately and advise on the implication and timing of any gifts.

Find out if you could benefit from the expertise of an adviser

Could you benefit from financial advice?

One of the first tasks when advising clients is to look at how much inheritance tax might be payable on their estate.

With recent rule changes and the introduction of the new residence nil-rate band, now could be the perfect time to review your financial arrangements.

In addition to gifting, there are a number of other ways to reduce the impact of inheritance tax. If you’d like to tackle this complex area of financial planning please book a convenient time for us to contact you today.

The challenge for investors is knowing when taking professional advice can add real value. We can help you decide – we always provide initial consultations about our advisory service without fee or obligation.

We’ll help you understand why our expert financial advisers could be the answer if you need more help, and how financial advice works, including the benefits and costs.

Book a time to talk to us today and find out if you could benefit

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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