ADVERTORIAL: Don’t let inheritance tax spoil your family Christmas

Gifting to loved ones is a Christmas tradition that everyone enjoys, whether it’s a shopping voucher, a good book or a new car, spoiling those around you adds that extra piece of holiday cheer.

However, for those who like to splash out on their gifts, inheritance tax (IHT) can put a dampener on the festive spirit, the last thing you want is a hefty bill under the tree.

Joanne Binks, solicitor at one of the UK’s leading full service law firms Shakespeare Martineau, explains everything you might need to know.

What is IHT and why do we need to pay it?

Quite simply, inheritance tax is a tax levied on assets acquired through an inheritance or gift.

Most commonly associated as the fee for inheriting money or property off a person who has died, the tax also lays out strict criteria for gifting.

What’s the tax-free limit for gifts and are there exemptions?

Annual lifetime transfers of up to £3,000 can be made each tax year without worrying about inheritance tax. Small gifts of up to £250 can also be made to as many people as you like.

Charity donations, and some gifts in consideration of marriages or civil partnerships, are not liable for inheritance tax depending on how closely related a person is to the happy couple.

Gifts of £5,000, for example, can be made by a parent and £2,500 can be made by a grandparent. All gifts between married couples or those in civil partnerships are generally also exempt, although it is important that domicile is considered here.

What’s the seven-year rule?

Most gifts will initially be considered as ‘potentially exempt transfers’. These become totally exempt when the donor has survived seven years from the date of the gift.

If you die within seven years of the potentially exempt transfer, the value eats into your Nil Rate Band (currently £325k per person), thus reducing or even eliminating the amount that can be passed to your beneficiaries without IHT implications.

Is there a way to avoid IHT?

No one can predict how long someone will live. However, early planning is recommended and it is always important to consider the capital gains tax implications of any gift as well as the IHT position.

One often overlooked option for IHT is the ‘normal expenditure of out income’ exemption. If a person can prove their income meets all their living costs, and that their standard of living can be maintained after the gift has been made, then it may be possible to claim this exemption for IHT.

To qualify, there must be a regular pattern to this gifting and maintaining records is crucial for the claiming of this very useful exemption. People often use this for the payment of school fees.

Want help with your estate planning? For a free consultation call 0330 024 0333, email [email protected] or visit the Shakespeare Martineau website.

Read More Related Articles Shakespeare Martineau grows Lincoln presence and boosts immigration team with appointment of Calum Hanrahan

https://www.business-live.co.uk
Harriet Morphy-MorrisCommercial Audience Writer
Sector
Business