Posts Tagged ‘Inheritance Tax’

Gifts and Inheritance Tax reliefs and exemptions

Thursday, January 26th, 2017

There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.

There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime – as long as they live in the UK permanently.

Other gifts count towards the value of your estate. There may be Inheritance Tax to pay if you’ve given away more than £325,000, but only if you die within 7 years.

Inheritance Tax on gifts is paid by the person who received the gift (the ‘beneficiary’) – not the estate.

What counts as a gift?

A gift can be:

  • anything that has a value, such as money, property, possessions
  • a loss in value when something’s transferred, for example if you sell your house to your child for less than its worth, the difference in value counts as a gift

Exempted gifts

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must still be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

The 7-year rule

If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’, however, gifts are not counted towards the value of your estate after 7 years.

Autumn Statement wish lists

Wednesday, November 23rd, 2016

Organisations across the UK have been publicising their wish lists for Philip Hammond’s first autumn statement later this week.

Amongst tax practitioners there seems to be a preference for increases in the Inheritance Tax threshold and the merger of income tax and National Insurance.

Northern business leaders are keen to see investment in roads and infrastructure, and incentives to invest and grow job opportunities.

There is a general consensus that we need to step up investment to improve access to super-fast broadband. Manufacturers would also like to see plant and machinery removed from business rate calculations.

Greens are hoping for investment incentives for green energy development and carbon capture.

In order to meet the increasing costs of care for the elderly, there is an expectation that a scheme will be announced to promote long term saving to meet these costs.

According to the pensions industry, less is more. They are hoping that Mr Hammond will leave them alone and resist the temptation to make the pensions’ tax rules ever more complicated.

Underlying all of these concerns is the uncertainty generated by the effects of our withdrawal from the EU. No doubt the Chancellor will aim smooth the transition, and on Wednesday this week we will finally see what number 11 is going to offer.

Lifetime transfers of assets

Wednesday, May 4th, 2016

Married couples and civil partners can gift each other assets and there will be no Inheritance Tax (IHT) charge on the lifetime gift as long as the recipient is domiciled in the UK.

However, transfers to others that are not covered by the reliefs listed at the end of this article, are treated as potentially chargeable lifetime gifts or transfers (PETs). The gifts can be included in the estate of the donor if they were made less than 7 years before the date of death.

If the person making the gift gave away more than £325,000 in gifts in the last 7 years of their life, and this includes the gift to you, you may be required to pay any IHT directly attributable to the gift. Otherwise, IHT is paid by the estate.

IHT is payable at the following rates on PETs made between the date of the gift and date of death:

  • Less than 3 years –  40%
  • 3 to 4 years – 32%
  • 4 to 5 years – 24%
  • 5 to 6 years – 16%
  • 6 to 7 years – 8%

These rates may be reduced if the deceased qualified for a reduced rate of IHT.

Gifts that aren’t charged to IHT include:

Annual exemption

Up to £3,000 of gifts made each year. The £3,000 exemption from the previous year may also be available, if not used in that year.

The following allowances are generally in addition to this.

Wedding gifts

There’s no Inheritance Tax on a wedding or civil partnership gift worth up to:

  • £5,000 given to a child
  • £2,500 given to a grandchild or great-grandchild
  • £1,000 given to anyone else

The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

Gifts up to £250

There’s no Inheritance Tax on individual gifts worth up to £250. You can give as many people as you like up to £250 each in any one tax year.

You can’t give someone another £250 if you’ve given them a gift using a different exemption, e.g. the £3,000 annual exemption.

If you give someone more than £250 in a tax year, the whole amount counts – the first £250 is not exempt.

Regular gifts from the giver’s income

There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. These gifts include:

  • Christmas, birthday and anniversary presents
  • life insurance policy premiums
  • regular payments into a savings account

Payments to help with living costs

There’s no Inheritance Tax on gifts to help with other people’s living costs if they’re made to, for example:

  • an ex-husband, ex-wife or former civil partner
  • a relative who’s dependent on them because of old age, illness or disability
  • a child (including adopted and step-child) under 18 or in full-time education

Charities

There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.

Political parties

There’s no Inheritance Tax on gifts to political parties that have either:

  • 2 members elected to the House of Commons
  • 1 member elected to the House of Commons and received at least 150,000 votes in a general election.

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