IHT explained
If you’re gifting money, you need to be aware of inheritance tax (IHT). When you die, your estate is valued for the purposes of IHT. This adds up the value of all your assets, from savings to possessions and property. If your estate is worth more than £325,000, the amount over that threshold will be subject to 40% inheritance tax. If you are leaving property to direct descendants, up to £175,000 of its value can be passed on free of IHT outside of the £325,000 allowance. You can pass assets to your spouse or civil partner without attracting
IHT and the surviving partner can utilise any of your unused
IHT allowances when they die.
So, it could be possible to pass on up to £1m without paying IHT.
‘For many, building up their wealth has involved years of hard work and prudence,’ says Lisa. ‘Utilising inheritance tax allowances and making gifts are just a couple of examples of what action could be taken to mitigate inheritance tax. Before considering a gift or transfer of assets, it is important to prioritise your own financial needs over any potential tax savings that may be achieved.’
When you give away money or assets, they are subject to the seven-year rule when it comes to IHT. This is designed to stop you giving everything away on your death bed. It means that you need to live for seven years after the gift before it will be excluded from your estate for IHT purposes.
There are exceptions to this though. You can give away up to £3,000 a year free of IHT concerns. Gifts of less than £250 aren’t included in IHT rules, provided they go to different people. You can also give a child £5,000 (or £2,500 for grandchildren) in the year they get married. Finally, you can give away as much money as you like out of your surplus income that doesn’t affect your standard of living. For example, if you earn £5,000 a month but only need £3,000 to cover your needs, you could give away the other £2,000 of income without having to worry about IHT. Just make sure you keep written records of anything you give away, including the recipient, how much you gave and the date that it was given.