{"id":67928,"date":"2025-08-14T15:21:25","date_gmt":"2025-08-14T15:21:25","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/67928\/"},"modified":"2025-08-14T15:21:25","modified_gmt":"2025-08-14T15:21:25","slug":"inheritance-tax-and-the-rise-of-giving-while-living-smart-ways-to-pass-on-wealth-tax-free-2","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/67928\/","title":{"rendered":"Inheritance tax and the rise of \u2018giving while living\u2019: Smart ways to pass on wealth tax-free"},"content":{"rendered":"

For generations, inheritance was something handed down after death. Now, amid rule changes meaning more might be taxable<\/a>, more families are flipping the script.<\/p>\n

Instead of waiting for probate and HMRC<\/a> to take a slice of their hard-earned assets, they\u2019re adopting a new approach: giving while living.<\/p>\n

However, even some of that might be stopped soon with the Treasury reportedly looking at scrapping the seven-year rule<\/a> – more on how you can still use it below – and setting a lifetime cap on how much can be given by people to their families before it is no longer exempt from tax.<\/p>\n

What\u2019s happening with inheritance tax?<\/p>\n

One major factor behind this shift is the growing impact of inheritance tax<\/a> (IHT<\/a>). With the UK\u2019s IHT threshold frozen at \u00a3325,000 since 2009 – despite soaring house prices and inflation – more estates are being dragged into the tax net.<\/p>\n

Currently, anything above the threshold is taxed at 40 per cent, unless it qualifies for reliefs like the main residence nil-rate band or passes to a spouse or charity.<\/p>\n

But the rules around gifting do offer some workarounds to pass on money<\/a> during your lifetime without triggering a tax bill<\/a> – if you plan properly.<\/p>\n

Why are people gifting early?<\/p>\n

According to HMRC, inheritance tax receipts hit a record \u00a37.5bn in the 2023\/24 tax year. That upward trend is likely to continue. Meanwhile, young adults are struggling with high living costs, unaffordable housing, and student debt.<\/p>\n

For many parents and grandparents, the most obvious solution is to give financial help now, when it matters the most.<\/p>\n

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open image in gallery<\/p>\n

(Getty\/iStock)<\/p>\n

\u201cMaking gifts to family while you are alive isn\u2019t just about tax planning,\u201d says Anthony Fuller, chartered financial planner at Path Financial.<\/p>\n

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\u201cGiving money while you are alive also means you get to see your loved ones enjoy it, which can be very motivating.\u201d<\/p>\n

Thanks to the UK\u2019s relatively generous gifting rules, there are legitimate ways to do this without incurring immediate tax consequences.<\/p>\n

Know your gifting allowances<\/p>\n

There are several exemptions that allow you to give away money or assets each year without incurring IHT:<\/p>\n

Annual exemption: You can gift up to \u00a33,000 each tax year free of IHT<\/a>. This can be carried forward one year, meaning a couple could give \u00a312,000 together if unused the previous year.Small gifts exemption: You can give up to \u00a3250 per person, per year, to as many individuals as you like, provided they haven\u2019t also received part of your \u00a33,000 exemption.Wedding gifts: Gifts made on marriage are exempt up to \u00a35,000 for a child, \u00a32,500 for a grandchild, or \u00a31,000 to anyone else.Normal expenditure out of income: Perhaps the most underused rule, this allows regular gifts from your surplus income – say, paying a grandchild\u2019s school fees – without affecting your estate, as long as it doesn\u2019t reduce your standard of living.<\/p>\n

There is more to know, however.<\/p>\n

The seven-year rule<\/p>\n

Larger gifts outside these exemptions fall under the \u201cpotentially exempt transfer\u201d (PET) rules.<\/p>\n

If you survive for seven years after making the gift, it falls outside your estate for IHT. Die within that window, and the gift may still be taxed, although taper relief can reduce the liability if you survive at least three years.<\/p>\n

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open image in gallery<\/p>\n

(Getty\/iStock)<\/p>\n

\u201cIf the driver behind gifting is decreasing the inheritance tax bill of your estate, then gifting early gives you a much higher chance of achieving this,\u201d says Fuller.<\/p>\n

\u201cYou need to live for at least seven years from the date of the gift for it to be fully successful for inheritance tax planning. This is much more likely for a 60-year-old than an 80-year-old.\u201d<\/p>\n

As noted, this is potentially under review <\/a>as part of a wider tax change.<\/p>\n

Watch out for traps<\/p>\n

Not all gifts are created equal. Giving away property or assets you still benefit from, like transferring a home but continuing to live in it rent-free, can trigger the \u201cgift with reservation of benefit\u201d rules. In those cases, HMRC may still count the asset in your estate.<\/p>\n

Also, capital gains tax<\/a> (CGT) may apply if you gift certain assets, such as shares or a second home, even if there\u2019s no cash exchanged. It\u2019s wise to get advice before gifting anything complex.<\/p>\n

Fuller warns that generosity should never come at the expense of your own security.<\/p>\n

\u201cThe first person you should look after in your financial plan is yourself – and that means keeping enough money to make sure you can afford to live your own life and pay for unexpected costs like replacing a car, roof or boiler.\u201d<\/p>\n

Keep records<\/p>\n

Whatever your strategy, documentation is essential. \u201cIt is important to keep a list of any gifts that you have made in your lifetime because they might need to be declared when you die as part of probate,\u201d says Fuller.<\/p>\n

\u201cWe suggest keeping a digital copy and printing out the latest version to leave with your will. Your executors should know where to find both.\u201d<\/p>\n

With proper planning and communication, your inheritance tax bill can therefore be significantly managed.<\/p>\n

When investing, your capital is at risk and you may get back less than invested. Past performance doesn\u2019t guarantee future results.<\/p>\n","protected":false},"excerpt":{"rendered":"For generations, inheritance was something handed down after death. Now, amid rule changes meaning more might be taxable,…\n","protected":false},"author":2,"featured_media":34629,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,186,184,185],"class_list":{"0":"post-67928","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-finance","12":"tag-personal-finance","13":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/67928","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=67928"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/67928\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/34629"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=67928"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=67928"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=67928"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}