Inheritance Tax: How to avoid paying tax on financial gifts to loved ones
Inheritance tax: Financial advisor provides advice
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With Christmas and New Year just around the corner, British taxpayers are being reminded that they can avoid a hefty inheritance tax bill from HM Revenues and Customs (HMRC) if they brush up on the rules and follow expert advice.
The complexity of the Inheritance Tax regime means it’s very easy to make mistakes.
Hundreds of taxpayers are caught out every year when it comes to paying Inheritance Tax (IHT) with figures showing that the average person loses a quarter of a million pounds each by paying ‘unnecessary’ tax on gifts, typically property.
As a general rule of thumb, if someone dies within seven years of making a gift, inheritance tax may be payable on the value of that gift.
However, where it becomes confusing is that there are some exemptions to this rule.
Emi Page, Associate at law firm Winckworth Sherwood said making the most of the tax breaks could save people a fortune.
She said: “The annual exemption allows an individual to gift up to a total of £3,000 each tax year, free of inheritance tax.
“If you do not use your £3,000 annual exemption, you can carry this forward one tax year.
“The small gift exemption allows you to gift up to £250 per person to an unlimited number of people each tax year.”
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On top of these gift exemptions, there are added allowances for giving gifts to people getting married or entering a civil partnership.
People can gift up to:
- £5,000 for a child.
- £2,500 to a grandchild or great-grandchild.
- £1,000 to any other person.
To benefit from this added exemption, the gift must be made within a certain time frame.
Ms Page explained: “The gift must be made on or shortly before the marriage or the registration of the civil partnership, it must be made in contemplation of the marriage or civil partnership, and the gift must be conditional on the marriage or civil partnership taking place.”
She added that this can be combined with the annual exemption but not the small gift exemption.
“So a parent could gift their child up to £8,000 – a £5,000 gift made in consideration of marriage plus using their £3,000 annual exemption.”
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They could even gift up to £11,000 tax free if they can carry forward a full unused annual exemption from the previous tax year, she added.
“It is therefore important to be mindful of the tax implications if you are planning on making a large gift to someone who is getting married or entering a civil partnership,” she said.
It’s thought that hundreds of people make this mistake every year which can prove costly.
She urged people to double check their allowances and make the most of tax breaks leading up to Christmas and the New Year.
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