A brief guide to IHT and gifts


IHT and gifts explained

Inheritance Tax is one of those things we all prefer not to think about, but for many of us, it’s a necessary consideration. In the UK, more and more people are having to plan for their family’s future, so we’ve created a guide that will help you when it comes to deciding what to do with your assets.

When is IHT incurred?

Inheritance Tax is paid upon the death of someone whose estate is above the value of £325,000. The amount payable is 40% on the part of the estate that is above this threshold; so, if the estate is worth £400,000, IHT is charged on £75,000.

As of April 2018, a home allowance of £125,000 is also granted, which can be used to reduce the IHT against a main home provided certain conditions are met.

There are, however, a couple of exceptions to this. If everything is left to a spouse or civil partner, there is no tax liability, nor if everything is left to an exempt beneficiary such as a charity.

How do you value an estate?

In order to value the estate of the decedent, their assets must be listed and valued as at the date of death. This includes property, cars, shares, and jewellery among other things.

Any debts and liabilities – such as credit card debts, mortgages, and household bills – should then be deducted. Keep records of how the value was calculated (such as an estate agent’s valuation) as HMRC can request such records up to 20 years after the tax is paid.

When does IHT need to be paid?

IHT should be paid within six months of the decedent’s passing. After this time frame, HMRC begins to charge interest. In some cases, tax can be paid in instalments over a period of up to ten years, but this can be a complex solution, so seeking advice from a tax specialist is advisable.

Are gifts liable for IHT?

Some gifts are exempt from IHT. If, for example, a gift is made more than seven years before the giver’s death, it is not counted among the assets that are liable. There’s also an annual tax-free allowance of up to £3,000 that can be given away without incurring IHT.

Wedding and civil partnership gifts up to a value of £5,000 can also be made to a child, or £2,500 to a grandchild, without being subject to Inheritance Tax.

It’s worth noting that some assets given as gifts are subject to Capital Gains Tax, so ensure you speak to an Inheritance Tax planning expert before giving gifts.

How can I reduce how much IHT is paid?

Reducing the tax liability on an estate can be complicated, but there are several ways to do it. These include:

  • Leaving money to charity
  • Putting assets into trust
  • Paying into a pension instead of a savings account

More information

To find out more, or to start planning for your family’s future, contact an estates and IHT planning professional today.

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