A time for giving…

Aaron Spencer

Partner & Head of Private Client

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December 8, 2020

Categories Tax and Wealth PreservationWills and Inheritance

As we head towards Christmas, you may be contemplating making gifts to family, friends or charities, and particularly if you are aware that these people have suffered during this turbulent year. Before doing so, you may wish to discuss matters with us to ensure that those gifts made are as tax efficient as possible.

7 year rule

When it comes to calculating the value of your estate, your Executors will need to look at the 7 year period leading up to your death to calculate the value of all gifts made during this period. The total number of gifts made will be added together and included in the value of their estate for inheritance tax purposes. The total number of gifts will reduce the amount of nil rate band available at the time of the individual’s death, and, if married, any transferable nil rate band for the estate of their surviving spouse.

Exemptions to the 7 year rule….

Gifts to spouses will not be included in this calculation, so all gifts to your husband/wife/civil partner can be unlimited in value.

Each individual is allowed to give away up to £3,000 each tax year (April to April) without that amount being included in their valuation of their estate. This is referred to as the annual exemption. It is also possible for any unused annual exemption to be carried forward to the next tax year. Please note that all the gifts collectively in the year must be less than the £3,000 limit, and this included envelopes of cash, jewellery, family heirlooms etc.

You are also able to make gifts of up to £250 to any number of individuals, as long no other exemption has already been used on that donee. Gifts out of any surplus income can also be made, but you must be sure to maintain your usual standard of living despite making these gifts.

Charities are exempt beneficiaries for inheritance tax purposes, and financial support for them will not result in an inheritance tax liability.

The rules surrounding lifetime gifts and inheritance tax planning are complex. It is advisable to seek specialist advice before making any gifts and, once they are made, how best to keep records to assist your executor in administering your estate. Please do not hesitate to contact us to discuss matters further.

Contact a member of our Succession planning team to find out how we can help you on 01227 763939.