Ask the Experts – a Monthly Q&A with Sintons’ WTE Team – Episode 48

Can lifetime gifts help reduce inheritance tax on my death?

Yeah.

So lifetime gifting, it can be a useful way to reduce inheritance tax, but you need to understand the rules carefully just to make sure that you are doing everything by the book.

So it is particularly worth considering if it looks like your estate is likely to be taxable on your death for inheritance tax purposes.

So if you think that, you know, your estate is actually not worth as much as you might think, and it is not going to be taxable, then this answer might not be as useful for you.

But if you have got an estate whereby your inheritance tax reliefs are not enough to stop the estate from being taxable, then this is something to look into.

So lifetime gifting is good for reducing any inheritance tax on death because giving away assets during your lifetime can reduce the value of your estate.

and therefore reduces the amount of inheritance tax that's payable.

It can also allow you to help family members when the money might be more useful for them.

For example, if you've got children who need a house deposit, they need a helping hand, or they've got education costs to pay for, or they're even starting a business, for example, then the money might be worth passing to them and then they can use it and your estate is then reduced for inheritance tax.

So broadly, I'll try and make it as simple as possible.

So if you make a gift to an individual, so family member, friend, for example, and you survive seven years from the date of that gift, then that gift will usually fall outside your estate for inheritance tax purposes.

If you die within seven years, then the gift might be brought back into your estate for inheritance tax purposes.

And that depends on the value of the gift.

It depends on the timing of the gift and what allowances you already have available for inheritance tax.

There are smaller exemptions as well, such as the annual exemption, which allows a person to give away a certain amount each tax year.

So that's April to April without it being added back to their estate.

And that is three thousand pounds per year at the moment.

So April to April, you can give away three thousand pounds and you don't have to worry about that seven year rule.

Regular gifts out of surplus income may also be useful in the right circumstances, provided that you properly record them and that they do not affect your standard of living.

So.

With that in particular, the regular gift out of surplus income, it's a relief that can be used.

It is quite a tricky one to claim, but you just need to keep good records and you should be fine.

But essentially, if you are retired and you are receiving an income and your standard of living would not be affected if you gave some of that income away in a regular fashion.

So you set up a hundred pound monthly payment to your son and that didn't affect the way that you lived.