Many will know that gifts between spouses and civil partners are free from inheritance taxes immediately. There are a number of additional gift allowances for inheritance tax planning:
Annual Gift Allowance
We each have a £3,000 annual gifting allowance for inheritance tax planning. If you have an unused annual gifting allowance for last year too, you can gift up to £6,000 this year which is immediately outside the estate should you die. This means that married couples and civil-partnerships could gift up to £12,000 this year and be outside their estates immediately.
Any accrued excess gifts over this will usually be treated as potential exempt transfers for 7 years and then fall outside the estate or if death within 7 years and total accumulated gifts exceed £325,000 nil rate band will being subject to some taper relief. Gifts that are made to a business, flexible/interest in possession trust or a discretionary trust over and above the inheritance £325,000 nil rate band will be subject to a lifetime transfer tax at 20% on day one, payable by the settlor or by another with agreement of the trustees.
In addition, we also have gifting allowances for:
Gifts from Normal Income
You are allowed to make unlimited gifts from normal income provided it does not reduce your standard of living.
£250 Small Gift Exemption
You can make unlimited numbers of £250 individual gifts.
Golden Rule: You cannot make 'small gifts' to the same people as other gifts and claim an IHT exemption.
This means you can make wedding gifts and gifts from normal income to the same people that you gift your £3,000 annual gift allowance to but you cannot make any £250 small gift exemptions to those same people. You should always keep a record of people, dates and amounts of gifts for your executors.