This informal CPD article Don’t Get Hit By The IHT! was provided by AAG Financial Education, a Wealth Management and Professional Services company established in 1995.
What is IHT Gifting?
IHT Gifting helps you to support your family at the same time as reducing your IHT liability.
Are there any rules / regulations with IHT Gifting?
- Gifts above the allowance are exempt from IHT if you survive for seven years after making the gift.
- Gifts above the nil rate band, made between three and seven years before your death are taxed on a sliding scale – known as ‘taper relief’. The longer the time, the less you pay.
- Gifts made from your regular income are tax free, as long as you can prove they do not diminish your own standard of living.
How can IHT Gifting be tax efficient?
Failure to put those plans in place can significantly reduce what you are able to pass on to loved ones. Assets such as your family home, bank accounts, ISAs, jewellery, art and antiques are subject to IHT at the standard rate of 40% after the first £325,000. Therefore, gifting can be incredibly tax efficient by way of reducing a potential IHT bill on death.
Is there any allowance related to IHT Gifting?
- Gifts to your spouse or civil partner are exempt from tax during your lifetime, or upon death.
- A tax-free allowance of up to £3,000 applies to gifts made to other people. You can carry the allowance over for one tax year, meaning you could give away up to £6,000 in a tax year.
- Your tax-free threshold increases to £500,000 if you pass your home to your children, stepchildren or grandchildren, subject to your estate being less than £2m.
- A reduced IHT rate of 36% is payable on certain assets if you give away 10% or more of the net value of your estate to charity.
- Gifts to children or grandchildren to pay for a wedding or civil partnership are exempt from IHT and are considered separate to the £3,000 annual exemption. You can give up to £5,000 to a child or £2,500 to a grandchild.
When is the best time to start thinking about IHT Gifting?
There is no set age for when you should start planning – and it differs for each person – but it will often begin at a point when your savings and assets begin to accumulate. This might coincide with children becoming less financially dependent and mortgage payments reducing or disappearing. The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
We hope this article was helpful. For more information from AAG Financial Education, please visit their CPD Member Directory page. Alternatively, you can go to the CPD Industry Hubs for more articles, courses and events relevant to your Continuing Professional Development requirements.
