Barrett and Co can offer you advice on how to reduce your inheritance tax bill…please get in touch
As the end of the tax year draws to a close we take this opportunity to remind you of annual gift exemptions that you may want to quickly take advantage of, or plan for the new financial year.
You may be able to give away money without paying inheritance tax, but it depends on who it goes to and how much you give.
Can you gift money without paying tax?
Yes, if you meet any of the following criteria:
- You make the gift more than seven years before you die. Any gift given between three and seven years before your death will be liable for Inheritance Tax at a reduced rate. This is known as taper relief.
- You make the gift to your spouse, civil partner, or a registered UK charity. There is no limit on the amount you can give to these exempt beneficiaries.
- The amount you give is less than your annual allowance of £3,000. You can give away a total of £3,000 each tax year to people other than exempt beneficiaries without paying tax, this is known as your annual exemption. For example, you could give one person £3,000 or ten people £300 each. Your annual exemption can also be carried forward one year if you do not use it, but for one year only. For example, if you make no cash gifts this tax year, you can give away a total of £6,000 next year. Married couples/civil partners each have an individual allowance, so £6,000 per year can be gifted per couple.
If you do not meet the above criteria then you can still gift money, but HM Revenue and Customs rules mean you cannot give away large sums without such sums then falling back into the value of your Estate when you die. All gifts made in the seven years prior to death are investigated as part of the estate administration process.
A gift is anything that has value, for example money, but it also covers anything that results in a loss of value when transferred, so for example if you sell your house for less than market value then the difference between the market value and the value paid will be treated as a gift.
Small cash gifts
In addition to the annual exemption above you can also give away small tax-free gifts of up to £250 to as many people as you like during the tax year, but:
- You cannot give a gift of more than £250 and avoid paying tax on the first £250. For example, you cannot give a gift of £300 and only pay tax on the difference between £250 and £300.
- You will have to pay tax on small cash gifts you give to people who have already received your £3,000 annual exemption limit.
You can also give cash gifts for weddings or civil partnerships without paying tax, but the limits depend on your relationship with the person receiving the money:
- If you are a parent, you can give up to £5,000
- If you are a grandparent, you can give up to £2,500
- Anyone else, you can give up to £1,000
What Barrett & Co can do for you: –
We can provide you with independent legal advice from an experienced trust and estate practitioner on your options for example
- Have you personally received an inheritance and are now considering gifting part or all of it? In some circumstances it is possible that your gift could be made free of tax if the person you received the inheritance from passed away within the last two years.
- Some other gifts that are made as part of your taxed income (not your savings) can also be exempt from tax. We can provide advice on what can qualify.
- If you are acting as an Attorney or Deputy these rules do not apply, and we can advice you further on it.
If you would like to discuss any topics raised in this article further, please contact Vanessa Ruparel, one of our Private Client solicitors here in Reading. Vanessa can be contacted on 0118 958 9711 or firstname.lastname@example.org