4 essential rules of gifting

4 essential rules of gifting

Wren Sterling’s guide to gifting rules and inheritance tax

When providing for your family and distributing your legacy you can give away as much as you like – but remember that the executors of your Will need to pay any inheritance tax (IHT) due before your assets can pass to your beneficiaries.

Phil Jenkins, a Chartered Financial Planner at Wren Sterling says: “Typically, clients have retired when they begin to plan for IHT. For some clients, this may be too late, as this raises the possibility of being taxed on gifts already made as they’re more likely to die within the seven year timeframe for tax-free gifting.

What are the rules on gifting?

  1. You might not need to pay IHT

If your estate is valued at less than £325,000, there’s normally no IHT to pay. Only the part of your estate above this threshold will be subject to IHT (currently 40%) – but of course, there are reliefs and exceptions.*

  1. The gifting ‘annual exemption’

You can give away £3,000 as gifts each tax year (6 April to 5 April) without their value being liable to IHT. This is known as your ‘annual exemption’. But if you die within 7 years of your gifting, then gifts above this threshold will be considered part of your estate and may be liable for tax. If the exemption is not used in one tax year, it can be ‘carried forward’ to the next year.

Can I make any other gifts?

  1. Don’t give away too much and affect your standard of living

If you’re looking to make other gifts – perhaps for Christmas or birthdays – they may be exempt from your annual exemption, as long as these gifts are paid out from your annual income, and you are left with enough income to maintain your ‘usual’ standard of living.

Small Gifts

An individual may make transfers of up to £250 to as many people as they wish in any tax year, providing they do not give more than £250 to any one person and the gifts do not form part of an associated operation. These gifts cannot be combined with the £3,000 annual exemption.

  1. Plan ahead – particularly for big life events

There are certain occasions when you can give gifts above your annual exemption. For example, if you know that your friends and family members will be getting married, you can give £5,000 to a child who is getting married, £2,500 for a grandchild, and £1,000 for others. Each tax year, you can also give away payments to help with another person’s living costs (such as an elderly relative or a child under 18), and gifts to charities and political parties.

Wren Sterling can handle all aspects of inheritance planning, including Will writing through our preferred suppliers. To discuss in more detail, please contact your Wren Sterling adviser.


*The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021. Any amount above the nil rate band could be subject to 40% IHT, which could be reduced to 36% subject to a gift of 10% of the estate being left to charity.

This information is based on our understanding of current taxation, legislation and HM Revenue & Customs practice, all of which may change without notice. The impact of taxation (and any tax relief) depends on individual circumstances and you should seek professional advice.

Wren Sterling can handle all aspects of inheritance planning, including Will writing through our preferred suppliers. To discuss in more detail, please contact your Wren Sterling adviser.

This information is based on our understanding of current taxation, legislation and HM Revenue & Customs practice, all of which may change without notice. The impact of taxation (and any tax relief) depends on individual circumstances and you should seek professional advice.

The Financial Conduct Authority does not regulate taxation & trust advice and will writing.

https://www.gov.uk/inheritance-tax/overview

https://www.warnergoodman.co.uk/for-you/private-client/inheritance-tax-planning/gifts-from-surplus-income-over-expenditure/

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

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