Use or Lose Inheritance Tax Allowances on Death

Published / Last Updated on 07/10/2021

When working out a deceased person’s net estate for inheritance tax calculations you cannot make use of any unused inheritance tax lifetime gift allowances.

E.g.  We all have a £3,000 annual gifting allowance for inheritance tax planning in life.  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.

This lifetime gift allowance alongside wedding gifts, gifts from normal income and the £250 small gifts exemption only apply when you are alive.

Anything you leave in your will to a beneficiary does not count as a gift to be offset against gift allowances but is part of your estate on death.

Gifting allowances are only available when you are alive.  When you die, only allowances available on death can be used such as:

  • Inheritance Tax Nil Rate Band £325,000.  Any unused nil rate band on death can be passed to your surviving spouse or civil partner.
  • Private Residence Nil Rate Band £175,000.  Any unused private residence nil rate band on death can be passed to your surviving spouse or civil partner.
  • Lifetime gifts made more than 7 years before death.
  • Business Property Relief.
  • Agricultural Property Relief
  • Gifts to Charities and Political parties.

Therefore, in terms of the usual gift allowances such as the £3,000 annual gift allowance or wedding gift allowances, use them or lose them.

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