Do we need to declare gifts for inheritance tax?
Whether a gift needs to be declared for inheritance tax purposes will depend on the amount and reason for the gift, and when the gift was made. It’s important to note that gifts do not just include money, but also anything that has a value, such as property and personal possessions. In addition, a gift can also include a reduction in the value of something. For example, if you transfer property to your children at less than market value, the difference in the market value and the amount your children are paying could be classed as a gift for inheritance tax purposes.
For example, if the gifts that were made by the deceased were just small gifts out of their normal income, such as Christmas or birthday gifts, these are usually “exempted gifts”. In addition, if the gift is made between a spouse or civil partner (and they live in the UK), these would also be exempted gifts.
As well as the above, there are a few other “exempted” gifts, including: p to £3,000 worth of gifts each tax year (6 April to 5 April) without them being included in the value of your Estate. This amount is known as an annual exemption. An annual exemption can be carried forward for a maximum of one year.
You can also give away the following every tax year:
A wedding or civil ceremony gift of up to £1,000 per person (increased to £2,500 for a grandchild/great-grandchild and £5,000 for a child)
A normal gift, which leaves you able to maintain your standard of living (such as for a birthday or Christmas present, as mentioned above)
Payments to helps towards another person’s living costs (i.e. an elderly relative or child)
Gift to charities or political parties
These exemptions do not have to be used on different people. For example, you could give money to your grandchild for their birthday and Christmas as well as for their wedding all in the same tax year.
Providing that you have not used an exemption on a person already, you can also make small gifts of up to £250 per person, as many times as you want.
If you have made a gift which does not fall under the exempted gift category, it may fall under your Estate for Inheritance Tax purposes.
Depending on how soon before your death the gift was made, will depend on how much tax is payable. After 7 years, there will be no inheritance tax to pay on the gift. This is known as the “7-year rule” and is often confused as relating to payment of care home fees; this is not the case.
For more information about the inheritance tax payable on non-exempted gifts made within seven years before the deceased’s death, visit gov.uk.
To discuss inheritance tax and for assistance with calculating the inheritance tax payable on an Estate, contact our expert team online, here, or email firstname.lastname@example.org.