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Christmas is a time of giving. If you’re planning a big gesture this festive season, you might want to take a look at Clare Gorman’s words of warning first…
I want to make a £50,000 Christmas gift to my daughter. Will it be subject to inheritance tax?
Inheritance tax is only paid when someone dies, if they leave assets in excess of the threshold, which currently stands at £325,000 per person. This can be increased if a property (or in some cases, a previously owned property) is being passed to certain relatives, for example, a child or grandchild.
However, gifts made during your lifetime could be subject to inheritance tax if you exceed £325,000 in any seven-year period, often known as the ‘seven-year rule.’
Making gifts can be a useful inheritance tax planning tool to reduce your estate, but it is a complex matter. It is important, therefore, to seek professional advice before handing over your money.
It is also advisable to keep records of any gifts, to make it easier for executors to calculate your estate.
Can I give my home to my children, but continue to live there?
This is an option for some, but it may not have the desired effect, i.e. to reduce inheritance tax, as it could be classed as a ‘gift with reservation of benefit.’ This essentially means your home could still be considered part of your estate, even if the gift took place more than seven years before your death.
Again, this can be a complicated matter, so seek advice before making any changes to the ownership of your property.
Are any gifts exempt from inheritance tax?
As I mentioned above, the seven-year rule usually applies to gifts. However, there are a few exceptions.
Each person can hand out £3,000 a year and carry over any unused allowance from the previous tax year, enabling you to give up to £6,000 tax free.
Other types of gifts can also be exempt, for example, birthday and wedding presents, festive gifts and donations to charities.
In addition, it is possible to give away excess income, which can be useful in preventing your estate increasing further in value, without the seven-year rule being applicable.
To find out more about the tax implications of making gifts, why not book a free 30-minute consultation with one of our probate specialists? Telephone (0114) 218 4000, email: info@tayloremmet.co.uk or complete this form.
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