With pensions set to fall into the inheritance tax net from 2027, families are scrambling for ways to protect their wealth.
UK households urged to gift children money before HMRC rule change
UK households can gift unlimited amounts tax-free ahead of a possible HMRC pensions tax raid – but there are three rules to follow. With pensions set to fall into the inheritance tax net from 2027, families are scrambling for ways to protect their wealth.
The allowance lets people pass on money from their extra earnings without being hit by the 40 per cent inheritance tax that usually applies to estates above the threshold.
To qualify, the gifts must come from income rather than savings or assets, be given on a regular basis, and not reduce the donor’s standard of living.
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Around 23 per cet of people plan to give away money to reduce their inheritance tax bill, research by Hargreaves Lansdown found.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, noted that “pensions can be one of our biggest assets and so we will see more people facing inheritance tax in the years to come.”
For gifts to qualify under the surplus income exemption, money must come from income, not from savings or assets, gifts must be made on a regular basis, as part of normal spending – AND payments must not reduce your standard of living.
Ms Morrissey warned: “None of us know how long we are going to live or what the future may hold.
“With this in mind, it is vital that you don’t overspend or give too much money away as there’s a chance you could do too much and leave yourself struggling later on.”
Some gifts are exempt from Inheritance Tax. There’s no Inheritance Tax to pay on gifts between spouses or civil partners.
You can give them as much as you like during your lifetime, as long as they live in the UK permanently and are legally married or in a civil partnership with you.
There’s also no Inheritance Tax to pay on any gifts you give to charities or political parties.