Exemptions and exempt gifts

More on inheritance tax - mainly for advisers

As mentioned, most lifetime gifts will be below the inheritance tax threshold (£325,000 April 2009 to April 2014). If a lifetime transfer does become chargeable there are a number of exemptions available. These include:

  • Annual exemption of £3,000
  • Small gifts exemption £250. You may give away £250 to as many people as you like, but no more. This exemption cannot be used alongside any other exemption – nor does it cover the first £250 of a larger gift
  • Gifts ‘in consideration of’ marriage / civil partnership
    • By parent £5,000
    • Other relative £2,500
    • Any other person £1,000

‘In consideration’ of, has a technical meaning. The gift, or at least a promise to make it, must happen on or shortly before the date of the ceremony. If the ceremony is called off and you still make the gift, or if you make the gift after the ceremony without having promised it first the exemption won’t apply.

Normal gifts out of income can be ignored. This includes birthday presents and the like. They must not be so high that they adversely affect your normal standard of living.

If the £3,000 annual exemption for the prior year has not been used, then it may be carried forward one year. This means that up to the first £6,000 of gifts in any tax year may be ignored for inheritance tax purposes.

Some gifts are always exempt. These include gifts to:

  • your husband, wife or civil partner, as long as they have a permanent home in the UK
  • UK charities
  • some national institutions such as museums, universities and the National Trust
  • UK political parties  that meet certain criteria

From 6 April 2012, there is a reduced rate of Inheritance Tax of 36% for those who leave 10 per cent or more of their net estate to charity. There is also a Cultural Gifts Scheme, available from 1 April 2012,  which provides tax relief for lifetime gifts to the nation of pre-eminent objects, or collections of objects, by individuals and by companies.

There is more information about exemption on the HMRC website at

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

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