The UK’s Trusted Probate Specialists
Death Duties as Inheritance Tax is frequently called often raises lots of questions, a common issue that arises is the treatment of Gifts.
Gifts in a will
Gifts that pass between spouses or to charities are exempt from inheritance tax
Gifts made during the lifetime of the Deceased
Everyone has an annual exemption. This allowance is £3,000 and can be given away annually without incurring any inheritance tax liability. If the full £3,000 is not used in a given year, the balance can be carried forward.
Gifts can also be made by grandparents and parents in contemplation of marriage.£5,000 for parents and £2,500 for grandparents.
Potentially Exempt Gifts
Potentially exempt gifts are commonly referred to as PETS.
PEts are only exempt from inheritance tax if the individual dies lives for at least 7 years after making the gift.
If the individual dies during the 7 year period, the PET becomes a chargeable transfer, with the recipient of the gift liable to pay the tax charged on it. The extent of any tax is of course subject to the value of the estate and the availability of any reliefs.
The rules provide a sliding scale of relief if the PET is made between 3 and 7 years before the donor’s death. This is called Taper relief, and is dependant upon the date of the gift. The rate of relief is as follows :-
Business and Agricultural Reliefs
Typically, IHT relief is available to cover business and agricultural property, subject to certain rules.
Gifts with Reservation
These gifts arise when a gift is made and the yet the donor still receives an interest. This typically arises in the case of a property. The Mother or Father transfer the property into the names of their children and yet still remain living there. These types of gift are called a gift with reservation of benefit, and as such the value of the gift will form part of your estate for inheritance tax purposes. If consideration is paid by the donor, in the case of a property being gifted to children, then this would not amount to a gift with reservation of benefit.
Unsure about a gift and inheritance tax ?
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