Inheritance Tax - Making lifetime gifts: key considerations
If you make a lifetime gift Inheritance Tax may have to be paid on that gift after your death. A lifetime gift can be a gift of cash, property, jewellery or even money you lose when you sell something for less than its market value. There is no Inheritance Tax to pay on gifts between spouses and to charity or political parties.
There are rules to consider when making a gift which we have outlined below:
Allowances for lifetime gifts
- Annual exemption.
Each individual can give £3,000 worth of gifts each tax year. This can be gifted to one person or divided between several, for instance, if you have 3 children you could give them each £1,000 per tax year.
You may also carry over the previous year’s unused allowance if you did not use it, but only for one tax year and you must use the current tax year’s allowance first. - Small gift allowance.
This amounts to £250 and you can gift this amount to as many people as you want in one tax year, but you cannot use this in combination with another allowance on the same person.
- Gifts for weddings or civil partnerships.
Each tax year you can make a gift free of Inheritance tax to someone who is getting married or forming a civil partnership. The amount you can gift free of tax depends on your relationship to the person you are making the gift to.
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person
Gifts out of income
Gifts out of income, or normal expenditure out of income, are regular payments you make to someone in. These payments must be from your regular monthly income and you must be able to afford your usual living costs.
You should keep clear records of any gifting you make out of income, as the relief from Inheritance Tax on this type of gift is claimed after your death. It is not an exemption/allowance.
You can combine this type of gifting with any other allowance (except the small gift allowance), such as the £3,000 annual exemption
The 7-year rule
No inheritance tax will be due on any lifetime gifts made more than 7 years before you pass away.
Gifts made utilising the above allowances are not subject to the 7-year rule.
Records
It is important that you keep clear records of all gifts made, especially where they were made using the above allowances.
We are committed to assisting you:
It is important that you take expert legal advice in relation to lifetime planning and our skilled solicitors at Nantes Solicitors will be happy to help you with this.
To book an initial appointment please contact us via our main contact page or call us on 01305 771 000
Related Articles You May Find Useful
Do I need a solicitor to update my will after life changes?
Major life events such as marriage, divorce, new children or buying property can affect your estate planning. This guide explains when updating a will becomes
Wills Bill 2025: Key Proposals to Modernise Wills Law
The Wills Bill 2025 proposes landmark reforms to the Wills Act 1837, including lowering the age to make a Will, digital execution, and updated mental
