Christmas is the time for giving and, if you have a high-value estate, it could be worth thinking about giving with gusto as part of your inheritance tax planning.<\/p>\n
You might want to help a child with a house deposit, or a grandchild with university fees. But if your estate is likely to be liable for inheritance tax, then you need to be aware of the rules.<\/p>\n
If you live for seven years after making a substantial gift, its value will usually fall outside your estate for inheritance tax purposes. But if you die within seven years of giving away money, and your estate is large enough to be subject to inheritance tax, the gift may be factored in when your estate is being settled.<\/p>\n
The inheritance tax thresholds<\/p>\n
Everyone has an allowance of \u00a3325,000 \u2014 known as the nil-rate band \u2014 that they can pass on after death, free of tax. There is a further tax-free allowance of \u00a3175,000 \u2014 the residence nil-rate band \u2014 if you leave the family home to direct descendants, such as children or grandchildren. Anything left to a spouse or civil partner is inheritance tax-free and they can also inherit one another\u2019s allowances, giving a couple a total of \u00a31 million to pass on tax-free.<\/p>\n
\u2022 Visit Times Money for personal finance news, guides and expert columnists<\/a><\/p>\n If your estate is worth more than \u00a32 million, the residence nil-rate band starts to be tapered away, until it is lost completely on estates worth \u00a32.35 million or more \u2014 \u00a32.7 million for a married couple. If your estate, including money, property and possessions, is worth more than the allowances, then 40 per cent inheritance tax can be charged on the excess.<\/p>\n At the moment only 4.6 per cent of deaths result in a tax bill but this will rise from April 2027, when private pension savings will become liable for inheritance tax. <\/p>\n Wealthy older people who don\u2019t want to land their families with a big tax bill often choose to pass on their money while they\u2019re still alive. Justin King from the Dorset-based advice firm MFP Wealth Management said he encouraged clients to give away money, as long as they can afford it, so that they can see it being enjoyed and appreciated. <\/p>\n \u2022 Inheritance gift guide: the do\u2019s and don\u2019ts of giving away money<\/a><\/p>\n He said: \u201cThe taxman can effectively top up your Christmas gifts. If your estate will pay inheritance tax, giving \u00a31,000 now could save your family \u00a3400 later \u2014 depriving HMRC of 40 per cent. You get to give generously today, and both you and the recipient can smile. It\u2019s effectively a 66.7 per cent return on your gift.\u201d<\/p>\n Giving away small sums <\/p>\n You can give away modest amounts each year with no inheritance tax consequences, even if you don\u2019t live for seven years after making the gift.<\/p>\n A gift allowance of \u00a33,000 each tax year can be given away without it later counting towards the value of your estate. This can go to one person or be spread among several. If you don\u2019t make full use of it one year, you can carry any unused portion to the next tax year. That means a couple can give away up to \u00a36,000 each tax year \u2014 potentially \u00a312,000 if they didn\u2019t use the allowance in the previous tax year.<\/p>\n You can also give unlimited gifts of up to \u00a3250, as long as you haven\u2019t used another gift allowance on the same person. And you can give \u00a35,000 to a child as a wedding gift, while grandparents can each give \u00a32,500. This is on top of the standard annual \u00a33,000 allowance. <\/p>\n