Many taxpayers are aware that there is an annual Inheritance Tax exemption of £3,000 for gifts and this can be carried forward to the following tax year if not used to make a maximum gift of £6,000. You can also give as many gifts of up to £250 per person as you want during the tax year but only if you haven’t used another exemption on the same person. There are also special allowances for gifts made at a wedding or civil ceremony. These gifts are ignored in the event of the donor’s demise within 7 years of making the gift.
It is also possible for wealthier taxpayers to make tax exempt gifts and payments out of their disposable income. With proper planning, this can be a useful tool, for example to enable grandparents to help pay school fees for their grandchildren. However, careful consideration has to be given to ensure that these payments form part of the transferor’s normal expenditure and is made out of income and not out of capital. The transferor must also ensure that they are left with enough income for them to maintain their normal standard of living after making the gift.
We can advise you on the merits of such arrangements to meet your needs. It is also important to review your Inheritance Tax position from time to time. Regularly reviewing and updating Wills to ensure you are taking advantage of the current rules most effectively is recommended.