Lifetime gifts

Lifetime gifts – that is gifts made by a living individual – are normally ‘potentially exempt transfers’ – that is, no tax is payable at the time of making the gift. This means that there is no tax payable at the date of gift for gifts between living individuals in the UK – whatever the size or timing of the gift. (Some gifts into trusts can be taxable, but no tax will be due if the present gift, plus gifts made by the same person in the previous seven years, are beneath the Inheritance tax threshold (£325,000 from April 2009 to 5 April 2015).

With potentially exempt transfers, if the giver lives another 7 years, no tax will be payable at all. If the giver dies within 7 years and the gift (plus gifts in the previous 7 years) are below the inheritance tax threshold, then no tax will be payable.

If tax is payable because the giver dies within 7 years and the inheritance tax threshold has been exceeded, then the tax charge is reduced by a certain percentage depending on how long the giver lived after making the gift. This is called taper relief and is considered in the next section.

There are additional tax reliefs for lifetime transfers. These include the annual exemption and the small gifts exemption. For details see the page  on Exemptions and exempt gifts.

Most lifetime transfers are below the inheritance tax threshold (£325,000 from April 2009 to 5 April 2015). This means that no tax is due and there is therefore no need to consider taper relief or exemptions.

There is some information about lifetime transfers on the HMRC website at http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM14001.htm