Inheritance tax (IHT) is a tax payable on money, savings and any other assets that a person passes on upon death. However, while some lifetime donations are exempt, there are also key rules people must follow if they want to use the allowance.
Inheritance tax is levied on a person’s estate if the total value of the assets exceeds £325,000. This is the current tax exemption threshold for the 2022-23 financial year.
The estate figure is confirmed after adding the value of the person’s assets (cash, property, personal property and investments).
If the total value of the assets exceeds £325,000, a 40% tax is applied to the remainder of the estate. However, there are ways to increase this.
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What gifts can we give?
According to Max Sullivan, Wealth Planner at Kingswood, people can donate up to £3,000 per fiscal year (in total, not per beneficiary) and if people don’t use it in a fiscal year, any remaining allocation can be carried over to next year.
However, Mr Sullivan said: ‘If you do this, you must use all of your allowance in that tax year – you cannot accumulate multiple years of allowance and use it in one donation.’
Donations of up to £250 per person per financial year to any number of people are also exempt from tax.
Each parent of a bride or groom can donate up to £5,000; grandparents or other relatives can donate up to £2,500 and any benefactor can donate £1,000. Donations to registered charities and political parties are also exempt from IHT.
However, Mr. Sullivan offered advice that people should do if they hope to use tax-free donations to pass on their wealth.
He said, “Always, always, always keep track of all the freebies you give. A simple record of when you made the donation, what it was used for, and the amount should usually suffice.
Chancellor Jeremy Hunt will unveil the much-anticipated Autumn Statement on Thursday, and it is believed to touch on the IHT threshold – an area that has caused much controversy over the years.
Mr Sullivan continued: “It is likely that the Chancellor will see inheritance tax as a potential ‘cap’ on the public spending deficit.
“Most importantly, individuals should seek professional advice and guidance before considering gifts and/or estate tax planning. Inheritance tax affects the majority of UK individuals in one way or another.