Succession planning can seem like something others do, something complex and expensive reserved for the very wealthy to reduce the amount of inheritance tax they have to pay. While it’s true that tax breaks are a motive for some, in practice the number one goal for people seeking advice on succession planning is to ensure their family is taken care of. There are a few simple ways that anyone, regardless of wealth, can gift to their loved ones during their lifetime and after death, which by the way are exempt from inheritance tax.
It should be borne in mind that a person must live seven years after a gift before it can be fully disregarded for inheritance tax purposes. However, each person has an allowance of £3,000 to gift in any tax year, which is immediately exempt from inheritance tax. In addition, if you do not use your allowance, it can be carried over once to the next tax year, giving a maximum allowance of £6,000. Allowance is per gift giver, not per person receiving gift. So if you wanted to give gifts to two people and were just using your allowance (and had no carried over allowance) you could give them £1,500 each. The allowance is applied chronologically, with donations made no earlier than the tax year being favored first.
Allowance for small gifts
Gifts not exceeding £250 are also immediately exempt from inheritance tax. You can gift £250 to as many individuals as you like. The small gift exemption cannot be combined with the annual exemption, so for example you cannot give a person £3,250 and claim £3,000 as an annual exemption and £250 as a small gift.
Gifts in consideration of marriage or civil partnership
Each parent can give their child out of their marriage or civil partnership up to £5,000 which is immediately exempt from inheritance tax. Likewise, each grandparent can give a tax-free gift of up to £2,500. Wedding gifts from other relatives or friends are also exempt up to a value of £1,000 per person.
Gifts between spouses or registered civil partners
Gifts of any kind between spouses and civil partners are exempt from inheritance tax as long as both persons are resident in the UK. Where one person is resident in the UK and another person is resident elsewhere, there are limits to the amount exempted and professional advice should be sought.
Gifts for charity