When 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.
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.
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:-
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.
- 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.
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.