Making financial gifts during your lifetime (Part 1)
If you are fortunate enough to have financial security, and more money than you need to live comfortably, then you may want to pass on some of your wealth to your family and friends while you are still alive. Making gifts to loved ones during your lifetime can be immensely rewarding and tax efficient, but it is important to be aware of the rules that dictate what you can and cannot do and the problems that can arise if you do not take proper advice.
In the first part of a two-part series of articles on this subject, Deborah Adams, head of private client department with Parnalls in Launceston, explains why lifetime gifts might benefit you and what you can safely give away each year. A second article will look at the slightly more complicated rules around potentially exempt lifetime transfers.
Why might I want to make gifts during my lifetime?
If the value of your estate (any property, money or other assets you own) is likely to exceed the threshold at which inheritance tax becomes payable, you may be able to take advantage of rules which allow you to give away some of your wealth during your lifetime without paying some, or all, of the inheritance tax that would be payable when you die.
The inheritance rules are complicated, but:
- you can leave up to £325,000 tax free, as sums up to this amount fall into what is known as the ‘nil rate band’ for inheritance tax purposes;
- this threshold can be increased to £425,000 for the tax year 2017/2018 (rising to £450,000 for 2018/2019, £475,000 for 2019/2020 and £500,000 for 2020/2021) if you choose to leave your main home, or the proceeds of sale from it, to your children or grandchildren;
- gifts to spouses, civil partners, charities and community amateur sports clubs are exempt from inheritance tax and are therefore excluded when determining how much your estate is worth;
- married couples or civil partners whose personal estate is worth less than £325,000 (and who therefore do not use up all of their nil rate band when they die) can pass on any unused allowance to the surviving spouse or partner so that, when they die, they will be allowed a tax free allowance of £325,000 plus whatever part of your allowance you did not use, up to a maximum allowance of £650,000 (and note the increased threshold for gifts of your main residence can also be passed on);
- where inheritance tax becomes payable, tax will be applied at 40 per cent unless there are any reliefs that can be claimed, such a business relief for business assets or agricultural relief for farms and woodland; and
- if you give away 10 per cent or more of your estate to charity, the rate at which inheritance is charged will be reduced to 36 per cent.
How much can I give away during my lifetime?
You can give away:
- £3,000 each tax year by taking advantage of your annual exemption allowance, with provision included to allow one year’s exemption to be rolled over to the next year if it is not used, meaning that if you do not gift £3,000 in this tax year, you can gift £6,000 in the next tax year;
- as many gifts of up to £250 a year as you like, provided they are given to different people and you have not already given those people a gift using up another exemption;
- normal gifts out of your income, for things like birthday and Christmas presents, provided the amount given does not affect your standard of living, i.e. it is surplus to your own income needs;
- wedding or civil ceremony gifts of between £1,000 to £5,000, depending on who the recipient is and their relationship to you;
- an unlimited amount of money to help fund a relative’s living costs; or
- unlimited gifts to charities or political parties.
Specialist legal advice can help you determine the gifts that can be made to take maximum advantage of the exemptions and allowances available, while still ensuring that you are able to continue to enjoy your current standard of living and to meet any future care costs or unexpected expenses, should these arise.
For advice on inheritance tax planning, or any other wills, estate or probate matter, please contact Deborah Adams on 01566 772375 or email email@example.com
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.