Inheritance Tax Exemptions & Allowances
Posted on 14th July 2021 at 13:32
Estate Planning - Inheritance Tax Exemptions & Allowances
Inheritance tax planning is fundamental when forming an estate plan, with lifetime inheritance tax exemptions and allowances being made available.
In our July blog, we cover those key areas for consideration:
Annual Exemption -
Each individual (person) has an annual exemption of £3000 per year. This can be gifted in any way that is not considered to be for 'inheritance tax purposes'. If the exemption amount of £3000 is not used fully in the fiscal year, then the unused allowance can be carried over to the next financial year (albeit only carried over once).
Small Gift Exemption -
Small gifts of £250 or below are exempt from inheritance tax. Individually you can make as many of these gifts as you wish each tax year, as long as the total amount gifted to each individual is less than £250. This proves useful if you have a large family such as a number of grandchildren or nephews / nieces, as you therefore could gift £250 to each of them every year, tax free.
* If however this allowance amount is exceeded, then the whole gift would then become taxable.
NOTE - These conditions only apply if your estate value is over the Nil-Rate Band & if applicable, the Residential Nil-Rate Band.
Gifting & Marriage / Civil Partnership -
Some gifts made in consideration of a marriage or civil partnership will not be considered for inheritance tax purposes. A lot will depend on the amount given and the relationship between the gift giver and the gift receiver:
A parent can gift (up to £5000) in total, inheritance tax free to a child (this can be an adopted child and / or stepchildren)
Either party to their marriage can gift (up to £2500) to the other
Remoter ancestors (inc. grandparents and great grandparents) can gift (up to £2500) to a remoter descendant
All other relationships, a person can gift (up to £1000).
♦ These gifts can be made to either party of the marriage, but not both.
♦ Any gifts made by a Spouse / Civil Partner to their Spouse / Civil Partner (during their lifetime), are not taxable as part of the giver’s estate.
*PLEASE NOTE - *CERTAIN CONDITIONS DO APPLY*
Maintenance of Family Members -
Reasonable payments relating to maintaining children/stepchildren who are minor, or still in full time education are exempt for inheritance tax purposes. Likewise, reasonable gifts for the care and maintenance of an elderly relative are also exempt.
* A 'relative' is either a parent / parent-in-law, or a relative / relative-in-law who is no longer able to care for themselves.
** Regular payments made from Income in certain circumstances, such as regular gifts of surplus income, for example into a child’s savings account, could be seen as being exempt from inheritance tax.
Gifts to Charities -
Any gifts to UK charities (as registered with the Charities Commission), are inheritance tax free, if the gift is made both outright, without any conditions or limitations, and immediate (with no one else having an interest between the giver and the charity).
* Most charitable gifts, those given absolutely and without any conditions, will qualify.*
Perfect Wills & Estate Planners work in association with local trusted firms of Chartered Accountants and Independent Financial Advisors, to provide bespoke tailored specialist and professional tax advice, to help with all your estate planning needs.
For more information and to get in touch with us regarding a free, no obligation, thirty minute consultation, please contact us:
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