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Using Simple IHT Allowances and Gifts

Depending on how you feel about inheritance tax you can take some simple actions to reduce your liability to inheritance tax.

Gift to spouses or civil partners are exempt from IHT if you are a permanent resident in the UK. They are also free from capital gains tax and therefore passing assets from one partner to another may also be a good idea for reducing income tax during your life time.

Other exemptions that could be considered include gifts to:

  • a qualifying charity
  • Museums, universities and the national trust
  • and UK political parties

One of the easiest ways to reduce your inheritance tax bill is by making sure that you use the annual exemption. You can gift £3,000 every tax year without attracting IHT or having to wait for 7 years before it has left your estate. Both partners are able to do this each year. If you have forgotten, or did not have the money, in the previous tax year you can give away double the amount. You can't go back more than one year for unused allowances.

Wedding and civil partnership ceremonies trigger additional IHT gift exemptions that should be considered, Parents of the happy couple can each gift £5,000 and Grandparents £2,500 each. Care should be taken as the gift must be made close to the time of the wedding and in the event of the wedding being cancelled the exemption to IHT will not apply.

 

Small gifts of up to £250 can be made to as many individuals as you wish, however gifts over £250 have no exemption at all.

Regular gifts and payments that form part of your normal expenditure can be exempt from inheritance tax. However these gifts must be paid from income after you have paid income tax and may not be made from capital. If the gifts are deemed to reduce your standard of life they may lose their exemption. The gifts must be regular, but not necessarily monthly. They could be the same amount each Christmas or birthday for example and could include the premiums for a life insurance.

Keep track of your gifts

Sorting out our own financial affairs can be bad enough. Dealing with someone else's when they are no longer around to ask a question is even worse. We would advise anyone making gifts whether they are large single gift or lots of small regular payments, to keep an accurate record of the gift and the exemption that you have used for your executor. It may also be useful to keep your tax returns available so that your representative is able to prove that the regular gifts came from income and did not affect your lifestyle.

 

     


 
 
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