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LS Legal News Bulletin

Gifts and Inheritance Tax

Gifts and Inheritance Tax

Friday 22nd November 2019

Whether you wish to make a gift to your grandchild or to your favourite charity, you will be potentially transferring part of your estate. If the life-time charge applies, the amount payable on Inheritance Tax (IHT) will be affected.

However, not all gifts are subject to IHT. Here is what you need to know.

The following categories of gifts are exempt for the purposes of IHT:
• Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
• Normal gifts out of your income, for example Christmas or birthday presents. However, you must be able to maintain your standard of living after making the gift.
• Payments to help with another person's living costs, such as an elderly relative or a child under 18.
• Gifts to charities and political parties.

You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

Additionally, the following provisions should be kept in mind:
• You can give away gifts with the total value of £3,000 each tax year. This is known as your 'annual exemption'. If you have any unused amount left within your annual exemption, you can transfer it to the next year (but only once).
• You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Even if your gift is not excluded by these exemptions, it may be possible to deter IHT under the "potentially exempt transfer" (PET). The only requirement is for the person making the gift to live seven years after making the gift.

If you wish to get more information, please do get in touch.