Don't get caught out on Gifting for IHT - Understand the Rules

According to a newly released Freedom of Information request from HMRC, the amount of Inheritance Tax (IHT) paid on gifts has increased by 153% since 2011, but why is that?

Gifting or giving away money during your lifetime is an incredibly valuable tool to help reduce your estate, the total of all your assets. The issue arises that if you do not survive the gift by seven years, the gifts are not exempt from IHT.

Another mistake many of us make is that if we go above the allowances of small gifts, for example £3,000 cash gift per year, known as the annual exemption, and in addition £250 cash gifts but to different people in the same tax year, then the whole amount is forfeited and included in your estate for inheritance tax purposes. So the allowances are really maximum thresholds, and you shouldn’t breach them, it is fine to gift lesser amounts.

The one gifting tool that many of us don’t realise exists and miss out on is gifting cash made out of surplus income. You are allowed to gift an unlimited amount, and the seven-year rule does not apply, as long as the money does not impact your day-to-day living standards, and this can be proved and is taken from your income, not capital.

If you want to know more about actively reducing your inheritance tax liability, please get in touch for a complimentary initial consultation.