There are important exemptions that allow you to pass your estate on to other people without it being subject to Inheritance Tax.
Reusing the Nil Rate Allowance
We can give assets to most trusts whilst we are alive without facing any Inheritance Tax provided that the nil rate allowance of £325,000 is not exceeded by the present gift and other chargeable transfers made within the previous seven years, and we survive a further seven years. The wealthy should therefore consider making substantial gifts to trusts to benefit their loved ones prior to death. They can then benefit from a further nil rate allowance if they survive a further seven years. A married couple can remove the equivalent of two nil rate allowances (currently £650,000 total) from their combined estate every seven years.
This is a simplified summary of complex legislation - please seek advice!
Exempt Beneficiaries
You can give things away to certain people and organisations without having to pay any Inheritance Tax. The gifts which are exempt, whether you make them during your lifetime or in your will, include gifts to:
•your husband, wife or civil partner, even if you're legally separated (but not if you've divorced or the civil partnership has dissolved). You must both have a permanent home in the UK
•UK charities
•some institutions including museums, universities and the National Trust
•UK political parties
Gifts to your unmarried partner or a partner with whom you've not formed a civil partnership are not exempt.
Wedding/Civil Partnership Gifts
Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax. The amount available depends on the relationship of the donor:
•parents can each give £5,000
•grandparents and other relatives can each give £2,500
•anyone else can give £1,000
•You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. Should the ceremony not proceed the exemption will not apply.
Gifts For Maintenance
You can make Inheritance Tax-free maintenance payments to:
•your husband or wife
•your ex-spouse or former civil partner
•relatives who are dependent on you because of old age or infirmity
•your children who are under 18 or in full-time education
Small gifts
You can make up to the value of £250 to as many people as you like in any one tax year without Inheritance Tax liability. But you can't give a larger sum and claim exemption for the first £250.
This exemption cannot be used in conjunction with any other exemption when making gifts to the same person.
Annual exemption
£3,000 may be given away in each tax year without Inheritance Tax liability. All or any part of the £3,000 exemption that you do not use in any tax year may be carried forward to the next, but no further. Therefore, you could donate up to £6,000 in any one year if you had a completely unused allowance from the previous year.
Our 'annual exemption' may be combined with any other exemption except the 'small gifts exemption'.
Gifts out of normal expenditure
Gifts made out of your after-tax income are exempt from Inheritance Tax if they're part of your regular expenditure. Gifts from capital are not exempt. Exempt gifts include:
•monthly or other regular payments to someone
•regular premiums on a life insurance policy (for you or someone else)
Good practice would suggest that you keep a record of your gifts, after-tax income and normal expenditure. You may need to demonstrate that the gifts are regular and that you have enough income to provide them and your usual expenditure without spending capital. However, the amount gifted need not be the same from year to year, provided that they are regular and do not affect your standard of living.
We have many years experience of providing estate planning for people in Brighton, Hove, London and the South East.
If you would like a 'no obligation' chat about the choices available to you, call us on 01273711811 or email us using the enquiries section or the 'Quick Advice Link' and we will contact you.
Reusing the Nil Rate Allowance
We can give assets to most trusts whilst we are alive without facing any Inheritance Tax provided that the nil rate allowance of £325,000 is not exceeded by the present gift and other chargeable transfers made within the previous seven years, and we survive a further seven years. The wealthy should therefore consider making substantial gifts to trusts to benefit their loved ones prior to death. They can then benefit from a further nil rate allowance if they survive a further seven years. A married couple can remove the equivalent of two nil rate allowances (currently £650,000 total) from their combined estate every seven years.
This is a simplified summary of complex legislation - please seek advice!
Exempt Beneficiaries
You can give things away to certain people and organisations without having to pay any Inheritance Tax. The gifts which are exempt, whether you make them during your lifetime or in your will, include gifts to:
•your husband, wife or civil partner, even if you're legally separated (but not if you've divorced or the civil partnership has dissolved). You must both have a permanent home in the UK
•UK charities
•some institutions including museums, universities and the National Trust
•UK political parties
Gifts to your unmarried partner or a partner with whom you've not formed a civil partnership are not exempt.
Wedding/Civil Partnership Gifts
Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax. The amount available depends on the relationship of the donor:
•parents can each give £5,000
•grandparents and other relatives can each give £2,500
•anyone else can give £1,000
•You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. Should the ceremony not proceed the exemption will not apply.
Gifts For Maintenance
You can make Inheritance Tax-free maintenance payments to:
•your husband or wife
•your ex-spouse or former civil partner
•relatives who are dependent on you because of old age or infirmity
•your children who are under 18 or in full-time education
Small gifts
You can make up to the value of £250 to as many people as you like in any one tax year without Inheritance Tax liability. But you can't give a larger sum and claim exemption for the first £250.
This exemption cannot be used in conjunction with any other exemption when making gifts to the same person.
Annual exemption
£3,000 may be given away in each tax year without Inheritance Tax liability. All or any part of the £3,000 exemption that you do not use in any tax year may be carried forward to the next, but no further. Therefore, you could donate up to £6,000 in any one year if you had a completely unused allowance from the previous year.
Our 'annual exemption' may be combined with any other exemption except the 'small gifts exemption'.
Gifts out of normal expenditure
Gifts made out of your after-tax income are exempt from Inheritance Tax if they're part of your regular expenditure. Gifts from capital are not exempt. Exempt gifts include:
•monthly or other regular payments to someone
•regular premiums on a life insurance policy (for you or someone else)
Good practice would suggest that you keep a record of your gifts, after-tax income and normal expenditure. You may need to demonstrate that the gifts are regular and that you have enough income to provide them and your usual expenditure without spending capital. However, the amount gifted need not be the same from year to year, provided that they are regular and do not affect your standard of living.
We have many years experience of providing estate planning for people in Brighton, Hove, London and the South East.
If you would like a 'no obligation' chat about the choices available to you, call us on 01273711811 or email us using the enquiries section or the 'Quick Advice Link' and we will contact you.