Tax Year End Planning Ahead of Budget IHT Gifting

We suggested a few weeks ago that you need to start your tax year end planning early given the Chancellor’s needs to spend on the NHS, Social Care and Defence, meaning ever high taxation and restricting our tax breaks and allowances.

See Early Tax Year End Planning

There is so much speculation for the Budget in changing gifting rules for inheritance taxes, putting a cap on lifetime gifts, extending the 7 year gifting rule to 10 years and many more.  Act before there are any changes to IHT and gifting (if any).

£3,000 Annual Gift Exemption

We can all gift £3,000 pa to loved ones, and the gift is immediately outside the estate for inheritance tax purposes.  If you did not use last year’s allowance, you can use that too this year, so a total gifting allowance of up to £6,000.  In addition, if you are married or in a civil partnership, you each have £3,000/£6,000 gifting allowances, so could double up to £6,000/£12,000.

Gifts in Excess of £3,000 Exemption

You can currently make unlimited financial gifts to individuals and provided you live for 7 years, these gifts then fall outside the estate. 

• Make those larger gifts now?
• Will a cap be introduced on lifetime gifts?
• Will the 7-year rule be extended to 10 years?

Gifts from Excess Income

Not commonly known but unlimited gifts from excess income (not capital) can be made and are immediately outside the estate.  When you die, HMRC will ask for a form with details of your income and expenses for the last 8 years as your executors must prove that you had ‘excess income’ to give away.  You need to keep a permanent record of your income and expenses each year and also ensure that these gifts from normal excess income are gifts from income and not depleting your capital.

• There is talk that the Chancellor may stop the ‘gifts from excess income’ rule, so consider making them now before it is too late.

£250 Unlimited Gifts Rule

You can make unlimited £250 gifts to different individuals.  You can literally walk around a family gathering or indeed whilst walking down a High Street and gift £250 to as many people as you wish and these gifts are immediately outside your estate.

• Will this gift rule disappear?  We think not as it is hardly ever used.

Wedding Gifts

• Parents can each gift £5,000 to a child on marriage and are immediately outside your estate.
• Grandparents can each gift £2,500 to a grandchild on marriage and are immediately outside your estate.
• Individuals can gift £1,000 to any individual or family member on marriage and are immediately outside your estate.

We do not expect this gifting rule to change.

Changes to inheritance taxes may be high on the Chancellor’s agenda, so do your IHT gift planning before the Autumn Budget.

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