Brits are being warned to prepare for a potential tax bill if they have ever given substantial gifts to their family members. This warning comes after HMRC disclosed last month that Inheritance Tax (IHT) receipts from April 2024 to December 2024 amounted to an astonishing £6.3 billion - a rise of £0.6 billion compared to the same period in the previous year.
Contrary to common belief, IHT is not only levied on what you leave your family upon your death but can also include 'gifts' you give while you're still alive. It's not just monetary gifts that could affect IHT either - household and personal items; property, land or buildings; stocks and shares listed on the LSE, and unlisted shares held for less than two years before your death are all categorised as a 'gift'.
"A gift can also include any money you lose when you sell something for less than it's worth," states GOV UK. "For example, if you sell your house to your child for less than its market value, the difference in value counts as a gift. Anything you leave in your will does not count as a gift but is part of your estate. Your estate is all your money, property and possessions left when you die. The value of your estate will be used to work out if Inheritance Tax needs to be paid."
The current Inheritance Tax (IHT) rate stands at 40 per cent for estates exceeding the £325,000 threshold, a figure that has been unchanged since 2009 and which will remain in place until at least 2030. Wesleyan Financial Services' specialist financial adviser, Jonathan Halberda cautions that with the frozen threshold, it's 'almost inevitable' IHT receipts will keep increasing every month.
"In general, every year you are allowed to give gifts of any value to a spouse or partner, or gifts of up to £3,000 to anyone else," he further elaborated. "You can also make regular payments out of your income, which can help stop the value of your estate exceeding the £325,000 tax-free allowance.", reports the Mirror.
Under existing IHT regulations, individuals can gift as many £250 gifts per person each fiscal year without using another allowance on the same person.
Moreover, gifts for occasions such as birthdays or Christmas from one's habitual income are not taxed. Additionally, each tax year presents an opportunity to bestow a tax-free gift to someone celebrating marriage or commencing a civil partnership.
According to GOV UK, it is permissible to: "If you're giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance," reads the official advice. "For example, you can gift your child a wedding present of £5,000 as well as £3,000 using your annual exemption in the same tax year."
However, there's a caveat to consider – gifts made less than seven years before one's death could be liable for Inheritance Tax (IHT), with the amount due depending on the gift's value and the giver's relationship to the recipient. "Gifts given in the three years before your death are taxed at 40 per cent," Jonathan pointed out.
He also noted that "Gifts given three to seven years before your death are taxed on a sliding scale known as 'taper relief'."
It's important to remember that taper relief only comes into play if the total value of gifts given within the seven years prior to death surpasses the £325,000 tax-free threshold.
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English (United States) ·