When an individual passes away, if they have assets that are worth over £325,000 then the estate will be liable to inheritance tax, however, it is also possible to be charged inheritance tax during their lifetime should they make certain transfers or gifts.
There are several relief’s available for those who want to limit the amount of inheritance tax they may pay and the following are the main ones.
Small gifts are not liable to inheritance tax and individuals can give gifts of up to £250 to each person in a tax year. There is also annual exemption where an individual can give away up to £3,000 per year without having to pay tax. Staying with the theme of gifts, it is possible for gifts to be given to couples shortly before they get married or on the day. From parents the limit is £5,000 whilst it sits at £2,500 for grandparents and £1,000 for all others.
Normal gifts are created from the income of the giver ensuring that they have enough income to continue their normal standard of living and there should be a pattern to these gifts. However, if there are plans do this then it is wise to seek further advice.
There is a potential that any gift made in their lifetime that is in excess of the annual exemption limit may be exempt from tax, but this is only the case if they live for more than seven years, then the whole gift become exempt. However, there are tax rules in place that prevent assets from being given as gifts if the giver still uses the asset.
Planning ahead is key to limiting the amount of inheritance tax, but it is a complex tax which is why it is vital to always take advice at the earliest point.