Maximise your legacy
QI own my own business and home and feel I would like to help my children financially. I am told that any gifts I make to them will be caught by inheritance tax. How can I sensibly pass some of the savings I have to them without paying this tax?
AALL gifts of any substance (above £250) potentially fall into the charge to inheritance tax (IHT) at 40 per cent. In recently published figures, the numbers of families paying IHT is at its highest level for 35 years. Many people are not fully aware of its extent.
You are right to consider ways of avoiding it, because there are exemptions which means its impact on families can be greatly reduced by forward planning.
Your own business should be exempt from IHT, but if you were to sell it in future, the proceeds would not be. Similarly your own house will fall into charge. Spouses can leave or gift assets to each other free of IHT, but that does not help passing them down to your children.
You can make gifts within your lifetime allowance (£325,000) without incurring a charge and if you survive seven years after making the gift, it will fall out of charge. There are other annual exemptions (£3,000 pa) that can be made, and provisions for gifts made ‘out of income’ which can avoid IHT. However, it is important that you think through your plans carefully and I would suggest you start by drawing up a list of all your assets and ask a professional to estimate the IHT on them. Then draw up a will and Power of Attorney, before deciding what you can sensibly gift now and in the years to come.