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Murray Beith Murray LLP is a leading Scottish private client law firm.

For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.

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Inheritance Tax Planning: Lifetime Gifts

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peterWhen it comes to estate planning, Inheritance Tax liability is a key consideration for many.  You can mitigate this during your lifetime through gifting.  As well as reducing the value of your estate for Inheritance Tax purposes, you can enjoy seeing your loved ones benefit from the gifts. In this article, we consider how you can make the most of lifetime gifting.

When can I give a lifetime gift? 

Most gifts that you will make during your lifetime will be classified as ‘potentially exempt transfers’ (PET).This is because they will only fall outwith the scope of Inheritance Tax if you survive for at least seven years after making the gift. There are, however, certain gifts that are immediately exempt from Inheritance Tax.

The annual exemption: explained

Each individual has an annual exemption limit of £3,000. This means that you can gift up to £3,000 each fiscal year, free from Inheritance Tax. Any unused annual exemption can be carried forward to the next tax year, but no further. For example, if you did not use any of your exemption last year, your allowance this year would be £6,000, You will only be able to carry forward this year's £3,000 exemption into next year.  Couples may make combined gifts of up to £12,000 if they did not use any of their exemption in the previous year. 

There are additional gifts that can be made with no Inheritance Tax consequences:-

    • Gifts under £250 - you can make an unlimited number of ‘small gifts’ of up to £250 to anyone who has not benefited from your £3,000 annual exemption. If a gift is over £250, this exemption will not apply to that gift at all. This means that the whole gift is potentially taxable, not just the value in excess of £250.
    • Gifts out of income any regular gifts made by you out of surplus income may also be exempt from Inheritance Tax, there is no limit to the value of such gifts. For this exemption to apply, the following conditions must be shown:-
        1. The gift was made as part of your normal expenditure, meaning that the payments should be regular;
        2. It was made out of your income rather than capital; and
        3. After the gift was made, you were left with sufficient income to maintain your usual standard of living.

For example, birthday gifts or regular payments of an insurance premium.  It is important to keep records of your income and spending patterns to demonstrate these points.

    • Gifts to charity -  you will not be required to pay Inheritance Tax on lifetime gifts to charities. This includes any organisation that qualifies as a charity for tax purposes, such asuniversities, museums, community sports clubs and political parties.
    • Wedding gifts – gifts made in consideration of marriage are also exempt from Inheritance Tax, so long as the wedding actually takes place and the gift is made before or on the day of the wedding. The limit of such gifts depends upon your relationship to the recipient. You can gift:-

- up to £5,000 to your child
- up to £2,500 to your grandchild or greatgrandchild
- up to £1,000 to any other person

While these exemptions may seem fairly modest, a worthwhile saving can be achieved if they are used on a regular basis.

Specialist Estate Planning Lawyers, Edinburgh

Murray Beith Murray Partner, Peter Shand, is head of the Asset Protection group and is a specialist in succession and estate planning. If you would like to discuss any of the issues covered in this article, or if you require assistance with any other matter, please complete our contact form or call us on 0131 225 1200.

Murray Beith Murray was established in 1849, as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day, as does our commitment to be here when you need us.

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