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Inheritance Tax - Gifting

If any individual makes a gift of an asset, cash or property and dies within 7 years of making that gift, then Inheritance Tax may apply. There are some exceptions to this rule as follows and 'Gift' allowances include:

• The Annual Exemption - lets you give away up to £3,000 per tax year (or £6,000 if you have not used the previous year's allowance).
  
  
• The Small Gifts Exemption - lets you give up to £250 to as many people as you wish in any tax year.
  
  
• The Gifts from Normal Expenditure Exemption - lets you gift as much of your surplus income as you wish to, without Inheritance Tax consequence. HMRC accepts that if you have surplus income that you do not spend, this will increase your wealth, only to be taxed subsequently at 40% on your death. This exemption is often referred to as the gifts from surplus income exemption. Gifts under this exemption do not have to be the same amount every year. In order to qualify, the gifts must; be from income and not capital, be on a regular basis or intended to be regular, not materially affect your standard of living.
  
  
• The Marriage Gifts Exemption - lets you give a cash gift to someone getting married. Up to £5,000 for each child or stepchild; up to £2,500 for each grandchild or other relative; and up to £1000 for any other person.
  
  
• The Charitable Donations Gift Exemption - lets you give any amount to any registered charitable organisation.
  
  
• Potentially Exempt Transfers - let you make gifts of money during a lifetime, which exceed the annual gift allowance of £3,000 (as detailed above), but remain within the Nil Rate Band. Provided the donor survives for a further 7 years, no tax will be payable and the gift becomes a Potentially Exempt Transfer (PET). In the event of death within the 7 years, however, tax will be payable. If death occurs after 3 years, taper relief is available to reduce the amount of tax due. Up until the 2006 budget, gifts into certain types of trust were classed as PETs, however, this will now only apply to trusts set up for disabled persons.
  
  
• Spouse/Civil Partner Exemption - lets you transfer to your spouse or civil partner any assets, no matter how large, without any Inheritance Tax liability.