Inheritance Tax (2)

1. How to Pass on Gifts Without Losing Out to Inheritance Tax Worried about inheritance tax eating away at what you want to leave your loved ones? The rules around gifting money, property, or possessions in the UK can seem confusing, but getting familiar with them helps people make smarter choices for their families. Here’s what matters most, explained simply. ● Gifting allows you to pass assets to others while you’re alive ● It means transferring wealth (e.g., cash, property, shares) before death. ● Inheritance tax in the UK sits at 40% on anything above £325,000 ● Estate is the total value of what you own at death. ● Not all gifts are taxed ● Some are instantly tax-free if done correctly. Annual Gift Exemption ● Each tax year, every adult - not just parents - can give away up to £3,000 worth of gifts, tax-free. ● Gifts can go to one person or be split among several people, as long as the total is within £3,000. ● If unused, the £3,000 allowance rolls over for one year only. Small Gift Allowance ● You may give up to £250 to anyone, as many people as you like, per year. ● No inheritance tax, as long as you haven’t given other gifts to that person in the same tax year. Wedding Gift Allowance ● Special tax-free limits apply for wedding gifts: ● £5,000 to your child ● £2,500 to a grandchild/great-grandchild ● £1,000 to anyone else. Gifts Out of Income ● If you regularly give money from your normal income, and this doesn’t affect your standard of living, those gifts are immediately exemption from inheritance tax.

2. ● Examples: Regular support for children or grandchildren, paid out of pension or salary. ● Keep good records of these gifts and your income to show HMRC later. The Seven-Year Rule ● If you survive 7 years after giving a gift, there’s no inheritance tax. ● If you pass away before 7 years, the taper relief can reduce the tax. Charges get lighter the longer you live after giving the gift. Years after the gift Tax rate Less than 3 40% 3 to 4 32% 4 to 5 24% 5 to 6 16% 6 to 7 8% 7+ 0% ● Taper relief only applies if the total gifts are above the £325,000 threshold. Who Pays Inheritance Tax on Gifts? ● Normally, inheritance tax is paid by your estate.

3. ● If gifts within 7 years exceed £325,000, those receiving them may have to pay the tax themselves. Gifts with Benefit (Gift with Reservation) ● If you still enjoy or use what you “gifted”, such as living in a house given to someone else, the gift counts as part of your estate for tax. ● It’s important not to keep using what you gift, or it loses “gift” status in HMRC’s eyes. Keep Good Records ● Always log: ● What was given ● Value of the gift ● Date of the gift ● Who received it? ● Keeping records makes tax planning more straightforward for your family and estate executors later. Changes Coming in 2025? ● Potential rule changes may limit popular exemptions and alter the seven-year rule, making early planning more important than ever. ● Review your plans, as lifetime gifting allowances may be capped or extended in the future. Quick Tips for Smart Gifting ● Spread gifts over several tax years by using your exemptions. ● Consider making regular gifts from your surplus earnings, but always keep accurate records. ● Avoid strings attached, don’t keep using gifted assets. ● Consult a professional adviser if you’re considering large or complex gifts, especially when giving property or shares. Common Mistakes to Avoid ● Forgetting to track gifts and dates ● Misunderstanding the seven-year rule

4. ● Not using the annual or small-gift exemptions ● Gifting assets but continuing to benefit from them ● Giving lump-sums without considering taper relief. What Counts as a Gift? ● Money (cash/transfer) ● Property or land ● Stocks or shares ● Goods and personal items (jewellery, antiques, cars) ● Selling below value (if you sell a house cheaply to family, the difference counts as a gift).