Gifting is a common tax planning tool and a great way of reducing the value of your estate for inheritance tax purposes. Any gifts made to your spouse are exempt from inheritance tax, however, if you gift money (or assets) to your family members or friends during your lifetime it is important to consider the tax implications before doing so because your estate could be subject to an increased inheritance tax liability.
The general rules of gifting are:
- Everyone has an annual exemption of £3,000 which you can gift each year without any tax implications.
- There are exemptions and reliefs available each year; for example, you can give wedding/civil partner gifts up to £1,000 per person (£2,500 for a grandchild and £5,000 for a child), small gifts up to £250, and regular gifts made from your income, such as Christmas or birthday presents. Any gifts to charities or political parties during your lifetime are also completely exempt.
- For gifts that do not benefit from any exemptions or reliefs, the seven-year rule applies. If you survive seven years from the date of the gift, the value of the gift falls outside of your estate and no inheritance tax is payable. However, if you pass away within seven years of the gift, the value of the gift will be subject to inheritance tax at a rate of 40% (above the nil rate band of £325,000) with taper relief applying if you pass away after three years of the gift.
If you are considering making a gift to a family member or friend, it is important to keep a clear record of any gifts made for future reference and take legal advice so that you are aware of, and can consider, any potential inheritance tax implications.
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