Save inheritance tax by making gifts
In my recent inheritance tax blog I commented on the need for a valid will. A will directs the distribution of your estate, but how can you save inheritance tax?
The simplest way to reduce your inheritance tax bill is through gifting. You can gift money or personal possessions, and take advantage of the allowances that currently exist. I say currently as these may, of course, be streamlined as part of the move to simplify the tax regime.
Inheritance tax exemptions
We all have an annual inheritance tax exemption of £3,000. That’s the maximum amount that can be gifted every tax year among as many people as you wish. If you haven’t used last year’s inheritance tax exemption then this is also available, giving you a total exemption of £6,000.
What does this mean? In theory, a married couple making gifts for the first time could between them make gifts totalling £12,000 to their children this year, reducing the value of their estate by the same sum.
Other inheritance tax exemptions include gifts of up to a maximum of £5,000, £2,500 and £1,000 respectively to children, grandchildren and friends who are getting married.
There is also the small gifts exemption that gives scope to make a gift of up to £250 per person in any one tax year. A restriction is in place if that person has already received a gift under a different exemption in the same tax year.
Gifts can also be made to charities and political parties, but one of the most underused exemptions relates to gifts out of income.
Gifts out of income
Regular gifts made out of income that do not compromise your standard of living are free of inheritance tax. Examples of this include using spare income to help pay a grandchild’s school fees or funding a pension or Junior ISA for them.
For people with a large income, this specific relief can make a significant difference. However, a degree of reconciliation and record-keeping is required
For more information on how we can help with inheritance tax, please speak to me or to your usual Larking Gowen contact.
Call 0330 024 0888 or email firstname.lastname@example.org
Personal Tax Senior Manager
Sign up to receive the latest news from Larking Gowen