3 November 2022
We all want to make sure that our loved ones are taken care of when we are no longer around. Estate planning is making sure your wealth is passed on to the people you care about in the most efficient way possible.
Our Wills, Trusts and Probate team outlines all you need to know if you are considering making gifts in order to reduce your estate’s future Inheritance Tax (“IHT”) bill.
What gifts can I make?
A gift can be anything that has value such as money, shares, property or possessions.
Exempt beneficiaries: Gifts to exempt beneficiaries such as spouses, civil partners and charities will not be subject to IHT provided that certain conditions are met.
Annual “gift allowance”: You can give away up to £3,000 free of IHT per tax year within certain parameters.
Small gifts and wedding/civil partnership gifts: You can also make as many small gifts up to £250 free of IHT to anyone provided that you have not used another allowance already in the tax year on the same person. Wedding/civil partnership gifts can be made free of IHT depending on your relationship with the recipient.
Gifts out of surplus income: Gifts made from your surplus income are not subject to IHT provided that specific conditions are met.
7 year rule
Gifts that do not qualify for an exemption are subject to the 7 year rule. This means that no IHT is due on gifts if you continue to live for 7 years after making the gifts (although gifts to trusts may incur IHT). If you die within 7 years of making a gift and there is IHT to pay, the amount of IHT will depend on when the gift was made and is reduced on a sliding scale from 3 to 7 years.
Make sure to keep a record!
The person who will be responsible for dealing with your estate on death will need to work out what gifts were made so it is important to keep a note of any gifts made.
What about if I transfer my house to my children?
This is a complex area and can create adverse tax consequences if not dealt with correctly. You should take tax advice from a solicitor before doing this.
Wills and Trusts
It is important to review your Will to ensure that it reflects your wishes and has been drafted tax efficiently.
Trusts are a useful IHT planning tool and can be used to reduce future generations’ IHT bills. Trusts also have other key advantages such as protecting your assets from potential creditors and children’s future spouses, as well as preserving your assets for vulnerable beneficiaries.
Other tax implications
Expert advice from a solicitor should be taken on any other tax implications which might arise from making a gift, such as capital gains tax.
How Blaser Mills Law can help
Blaser Mills Law works with families over time as their close advisers, helping to ensure that their wealth is passed seamlessly from one generation to the next.
By showing our clients how assets can be structured to protect them for the future, we can maximise the financial benefits for our clients and help them to avoid unpleasant surprises and conflict that can arise when dealing with succession.
The team will ensure that you have the right structures in place, giving you peace of mind for the future.