Tax Free Gifts to Family Members
TAX-FREE GIFTS TO FAMILY MEMBERS
Are you a parent, grandparent, or godparent? Do you make use of your annual gift exemption? If you answered ‘yes’ to the first question you should also consider doing the second as a good way of Estate planning for Inheritance Tax purposes.
WHAT IS THE ANNUAL GIFT EXEMPTION?
Everyone is entitled to give away assets or cash up to a value of £3,000 annually without it being added to the total value of their estate for Inheritance Tax purposes. Any unused part of the exemption can also be carried forward for one tax year.
Parents can gift up to £3,000 tax-free per year to help towards a house deposit, renovations, or as a gift to a new grandchild, for example. Remember that this is your personal allowance, so you cannot give each of your children £3,000. You would need to split the annual exemption between your children if you are gifting to more than one.
OTHER TAX-FREE GIFTS
When we talk to our clients about estate planning many of them do not realise that they can also gift the sum of £5,000 to a child who plans to marry, tax-free, and also £2,500 to a grandchild towards the cost of their wedding.
Normal gifts out of a person’s income, for example Christmas or birthday presents are also tax-free.
Finally you can give smaller gifts of £250 per person tax-free so long as you haven’t used up another exemption on that same person.
THE SEVEN YEAR RULE
If an Estate is subject to Inheritance Tax, then HMRC has put in place a set of rules to prevent people from making deathbed gifts to avoid paying taxes at 40%.
If you give a gift to a value above your annual gift exemption, then the gift is known as a “Potentially Exempt Transfer” for tax purposes. This means that if you live a further seven years then that gift is ignored and discounted from your Estate for Inheritance Tax calculation purposes.
Gifts made 3 to 7 years before your death are taxed on a sliding scale depending on how soon after making the gift that person then died.
Planning ahead, using your annual gift allowances to pay into a trust or outright to a child several years in advance of when they may need that money could be a good way of Estate planning for the future.
We discuss Estate planning when advising you about your new Will, as well as providing you with information and tips to make the most of your annual exemptions.
Call Amye Aris today on 01908 542 677 or email firstname.lastname@example.org to see how we can help you.