With Christmas rapidly approaching, many people will be in the giving spirit and, in addition to the usual seasonal gifts, often take this opportunity to make gifts of cash to reduce the value of their estate for Inheritance Tax purposes.
As a recap, when lifetime gifts of cash are made outright to individuals, they are classed as Potentially Exempt Transfers (PETs). This refers to the fact that if you make the gift and survive for 7 years then the value falls out of your estate for Inheritance Tax purposes. However, if you die within 7 years of the gift, then the PET fails and the value is brought back into account on death for Inheritance Tax purposes.
However, certain gifts of cash are exempt for Inheritance Tax purposes, and include:
However, a word of warning: if you give more than £250 to any one individual then the whole amount will be brought back into account for Inheritance Tax purposes, not merely the amount exceeding £250.
For example, Miss Chance has excess income (after the payment of bills and usual expenses) of £500 per month. She therefore decides to pay the rent for her niece’s apartment on an ongoing basis, which is £450 per month. So long as Miss Chance’s excess income does not decrease, these payments would be exempt for Inheritance Tax purposes.
If larger gifts of cash are being considered, it is worth taking expert advice as there are many unforeseen consequences and pitfalls that can arise when gifts are made during lifetime. This is especially so in relation to property and the recent changes to the ‘Residential Nil Rate Band’ (see our recent article for more information).
At Hay & Kilner we have a team of solicitors with specialist expertise in relation to estate planning and Inheritance Tax, who can advise on lifetime giving and the wider issues this entails.
For further information, please contact Alice Clewes, Partner at Hay & Kilner
Call: 0191 232 8345