Anne Robinson dominated the front pages last week announcing she is giving away her multi-million-pound fortune to her family before her death to avoid inheritance tax. On the face of it, this sounds like the simplest form of estate planning by doing very little planning and giving away everything you own before you die, but actually gifting in your lifetime needs to be carefully planned, as, if not done correctly, your loved ones could still be hit with an inheritance bill after your death.

You could argue that at aged seventy-nine, Anne Robinson has left it rather late to start the process of gifting to reduce her overall estate for inheritance tax purposes, and this is because any type of gifting you do, requires you to follow the HMRC guidance on gifting to ensure you achieve your goal of a tax-free inheritance for loved ones.

A recap of the key takeaways if you are considering following Anne Robinson’s model of gifting to your loved ones now to help them financially in your lifetime.

**Making regular payments over a period of time**

This is an estate planning tool which is not used as often as it should be, as many people are not aware it is available to them. This is a great tool, particularly with older individuals, as it does not have a time limit on survival after the gift is made and the amounts you gift are limitless and tax-free.

For this option to work, you can gift cash on a regular basis to a loved one, but the cash gifts must be made from ‘normal expenditure out of income’ – in other words, you can demonstrate the regular cash payments do not impact your own day to day financial needs and you pay from regular income you receive.

This is a great estate planning tool if you are grandparent or parent for example, who wants to support paying rent on behalf of your loved ones, or paying into a savings account for a grandchild or child under 18, or even giving financial support to an elderly relative. Lots of grandparents use this to help their children cover childcare costs, too. There are various gifting options available to you to reduce your overall estate for IHT purposes, and the good news is that you can use this gifting option of ‘normal expenditure out of income’ with other estate planning tools.

For example, you can give your child a regular payment of £100 a month (a total of £1,200 a year) as well as giving the same child your annual exemption of £3,000 in the same tax year. See exemptions below to learn more. Not all gifting options can be used together, it’s always wise to seek professional advice, get in touch with us if you want to learn more.

**Potentially Exempt Transfers (PETs) Gifting a one-off unlimited sum: timing is everything**

You can gift any amount to a loved one as long as you survive for seven years after the gift is made so the amount is not included in your estate and is not liable to inheritance tax. This is known in the tax world as a ‘potentially exempt transfer’ or PEP.

Be aware: For this to work, the person gifting (donor) not only has to survive 7 years, but also must not have access or use the gift themselves after you give it away.

Top Tip: For any form of gifting to actively reduce your estate for IHT purposes, you need to make sure you document this in writing and this evidence forms part of your estate plan, and loved ones have access to the evidence after your death.

Risks: If the donor does die within seven years of making the gift, the loved one receiving the gift will be liable to pay IHT. Again, good documentary evidence should be shared with loved ones and the risks advised at the time of gifting.

**Gifting your biggest asset, your home**

Many of us who own our home are aware that this is the biggest, or one of our biggest assets, that is liable for IHT. But gifting your home to your loved ones whilst still alive, even legally changing the deeds to loved ones, and then continuing to live in the property, will not mean the property falls out of your estate for inheritance tax purposes. The taxman unfortunately is wise to that!

Top tip: You could gift your home and continue to live in it if you then set-up a rental agreement and pay the market rate for the property. Formalising this process will ensure that after you die, there will be no repercussions from the taxman and your home can then not be included in your estate and liable to IHT.

Another Top Tip: Understand how much your estate is worth overall and if you are close to the the inheritance tax-free threshold, you could consider only gifting half your home to your loved ones, in other words, you share ownership of your main home versus total surrender of your home whilst you are alive. Again, this needs to be documented legally and all household bills and costs need to be shared equally between you and your loved ones to ensure IHT is avoided, as planned.

Annual Exemptions Don’t forget these!

You can give away a total of £3,000 worth of gifts each tax year (6th April to 5th April) tax free - this is known as your ‘annual exemption’. You can gift this amount to one person, or multiple, as long as the total amount gifting does not exceed the £3,000 per tax year.

Top tip: You can use any unused annual exemptions from the previous tax year, so if this is the first time you have learned about this useful estate planning tool, you can gift up to £6,000 now to loved ones tax-free.

Another Top Tip: We also as UK individuals have a ‘Small gift allowance’, where you can gift up to £250 per person in a tax year, but this person must not the same person who has received gifts under the annual exemption. Birthday and Christmas gifts are exempt from inheritance tax if paid from regular income, so the £250 small gifts allowance can be an additional, separate gift.

**A gift for every occasion?**

Did you know that another way to reduced your estate for IHT purposes includes making cash gifts for weddings or civil partnerships tax free? In a given tax year (6th April to 5th April) you can give a tax-free cash gift to your child of £5,000, £2,500 to a grandchild or great-grandchild and £1,000 to any other person you know.

Top tip: This is another exemption that you are allowed to use in conjunction with other gift exemptions, like the small gifts exemption noted above. So you could for example, gift a wedding cash gift to a grand child, and also gift them an additional £250 covered by the small gifts allowance, in a given tax year. Or if you are feeling generous, you can gift a child £5,000 wedding gift as well as your full £3,000 annual exemption in a given tax year to help them on their way at the start of a marriage.

We don’t know the exact details on which estate planning tools Anne Robinson is using to give away all her estate before she dies, but we can guess that some of the ideas above will have been used.

Whenever making decisions on how to reduce your inheritance tax liability, it is really important to seek specialist advice, as IHT planning cannot be done in isolation from other taxes that may impact your decisions, such as capital gains tax, stamp duty or income taxes.

At Mirandus Accountants, we act as your financial advisor and accountant to help you operate both compliantly and tax efficiently, whether as an individual looking for standalone estate planning advice or as a business owner considering long-term tax planning opportunities.

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