Exemptions & reliefs
You should be aware of the exemptions and reliefs that are available to reduce a person’s liability to Inheritance Tax. The main ones are as follows:
Transfers of assets to a spouse or civil partner, as long as they have a permanent home in the UK, to a charity and to some national institutions are exempt.
£3,000 can be given if gifts in each tax year. Any unused part of the £3,000 exemption can be carried forwardto the following year, but if it is not used in that year, the carried-over exemption expires. This is in addition to the other gift exemptions.
Some gifts made during the person’s lifetime are exempt because of the type of gift or the reason for making it. These include wedding or civil partnership ceremony gifts, with limits according to the giver; the maximum is £5,000 for a parent. If the gift was made after the ceremony without it having promised it first, the exemption won’t apply.
Small gifts can be made up to the value of £250 to an unlimited number of people in any one tax year, but a larger sum can’t be given and an exemption for the first £250 claimed.
Gifts from normal expenditure
Any regular gifts made out of the person’s post-tax income, not including capital, are exempt as long as you the person had enough income left after making them to maintain their normal lifestyle. These include:
• monthly or other regular payments to someone
• regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
• regular premiums on a life insurance policy – for you or someone else
Exempt maintenance payments can be made to:
• the person’s husband, wife or civil partner
• the person’s ex-spouse or former civil partner
• relatives who are dependent on the person because of old age or infirmity
• their children, including adopted children and step-children, who are under 18 or in full-time education
Potentially exempt transfers
Other gifts will count towards the estate for Inheritance Tax purposes for a period of seven years after they were made. After seven years they are no longer included and are completely Inheritance Tax free. These gifts are called potentially exempt transfers (PETs).
If a person dies between three and seven years after making a gift and the total value of gifts made is over the threshold, any Inheritance Tax due is reduced on a sliding scale known as ‘taper relief’.
If an asset is given away but an interest in it is retained, for example, a person gives their house away but continue to live in it rent-free, then the gift will not be a potentially exempt transfer and will be included in their estate even if they live for more than seven years after making the transfer.
Tax reliefs available for properties used in business
You should be aware that there are tax reliefs available for properties used in business which can be used to reduce the Inheritance Tax liability. Business relief, agricultural relief or woodland relief may be available depending on the type of property and how it is used.
The information which we provide through Lasting Post is in outline for information or educational purposes only. The information is not a substitute for the professional judgment of a solicitor, accountant or other professional adviser. We cannot guarantee that information provided by Lasting Post will meet your individual needs, as this will very much depend on your individual circumstances. You should therefore use the information only as a starting point for your enquiries.