Giving gifts of cash or valuables before your death means that you can see your loved ones benefit from your generosity. But make sure you understand the Inheritance Tax situation before you give.
Inheritance Tax rules are complex, particularly when it comes to working out what might be due on gifts given before death. Research by Brewin Dolphin found that only 12% of those questioned knew what the annual tax-free gift threshold is.
If money or a valuable item (a lifetime gift) is given within the seven years before someone dies, then there is a possibility that Inheritance Tax will be due if the donor has given away more than the tax threshold amount of £325,000. In that event it would be the recipient of the gift who would be asked to pay the tax.
How much can you give tax-free?
An individual is permitted to give £3,000 per year, with no tax implications. This allowance can be carried over to the following year if it isn’t used, but it cannot be carried over for more than one year.
Amounts above £3,000 are added to the value of the estate if they were given within seven years of the donor’s death. If the total value of the estate exceeds £325,000, Inheritance Tax may be payable.
What is a lifetime gift?
As well as cash, any valuable item constitutes a gift and the value is added to the estate total for the purposes of calculating Inheritance Tax. This includes selling a property at below market value, for example to your children. In that event, the amount of the reduction is added to the value of the estate.
As well as the tax-free £3,000 per year, there are a number of other exemptions allowing you to gift money without needing to consider Inheritance Tax:
- Any money given to a spouse or civil partner;
- Single gifts of up to £250;
- Donations made to registered charities or political parties;
- £1,000 given as a wedding gift, rising to £2,500 for a grandchild or £5,000 for a child;
- Money given to an elderly or infirm relative or a child who is under 18 to support them;
- Gifts from surplus income, for example for birthdays or Christmas, providing it does not affect your standard of living.
The rules can be complicated and it is always worth seeking professional advice before distributing money.
To speak to someone about gifting, call one of our specialist team at legalmatters, on 01243 216900 or email us at email@example.com.
Data published by the Office for National Statistics shows that the wealth gap between generations in the UK continues to widen. The findings also show that inheritances are becoming increasingly important to younger people.
Over recent decades, rising levels of household affluence mean that the older generation has higher levels of wealth that can be left to younger family and friends. This wealth is passed on through inheritances, gifts and loans.
The latest Government report looks at how the transferal of assets impacts wealth inequality, social mobility and the intergenerational transference of advantages in the UK.
According to the findings, on average:
- Individuals with the most income and wealth were likely to receive the most substantial gifts and loans
- Those aged under 45 were the age group most likely to accept cash gifts or loans from friends and family of the value of £500 or more, and also received the highest amounts
- Those aged 55 to 64 were the most likely to receive an inheritance and also received the largest legacies
- The least wealthy and youngest individuals receive smaller estates, but they make up a much more significant proportion of their total net wealth
- Those in the middle of the wealth distribution were the most likely to receive cash gifts or loans from friends and family of the value of £500 or more.
Gifts and loans
Of 25-to-34-year-olds, 11% had received a gift or loan above £500 in the last two years. This is the age most people become first-time buyers and have children, which could suggest that older family members are keen to help support these expensive life stages. The next highest beneficiaries of gifts or loans is 25-44 year-olds (9%). So, the research could also indicate an ongoing dependence of adult children on their parents in the modern world.
When it comes to receiving an inheritance, the average age a person is likely to inherit is between 55 and 64. This is thought to be because people are living longer.
Inheritances are more likely to be received by those who already have relatively high levels of wealth. However, bequests received by those in the bottom income group were equivalent to 13% of their net wealth, while for those in the top income group inheritances were equivalent to 5% of their net wealth. So, legacies could play some role in reducing inequalities.
Knowing how people save and spend money – and understanding the impact of transfers of wealth between generations – is a crucial step in helping people reach their financial objectives.
To find out how best you can pass on your wealth, speak to one of our expert team by calling 01243 216900 or email us at firstname.lastname@example.org.