{"id":1827,"date":"2017-02-27T15:34:21","date_gmt":"2017-02-27T15:34:21","guid":{"rendered":"http:\/\/www.newsfin.co.uk\/news\/?p=1823"},"modified":"2017-02-27T15:34:21","modified_gmt":"2017-02-27T15:34:21","slug":"its-good-to-give","status":"publish","type":"post","link":"https:\/\/jalapenoltd.co.uk\/news\/its-good-to-give\/","title":{"rendered":"It\u2019s good to give"},"content":{"rendered":"

Inheritance Tax exemptions <\/strong><\/h3>\n

Making a gift to your family and friends while you\u2019re alive can be a very effective way to reduce the value of your estate for Inheritance Tax (IHT) purposes and benefit your loved ones immediately.<\/p>\n

Married couples and registered civil partners are allowed to pass their estate to their spouse tax-free when they die. In other words, the surviving spouse can inherit the entire estate without having to pay IHT.<\/p>\n

You can also pass on your unused tax-free allowance to your spouse. However, gifts to your partner who isn\u2019t married to you might incur IHT.<\/p>\n

When to make that gift<\/strong>
\nWhat and how much you wish to give your children or other members of your family is completely up to you. But to ensure that it\u2019s IHT-free, it\u2019s important to plan when to make that gift. So long as you live more than seven years from when you make this gift, your children or family will not have to pay IHT on your gift when you die.<\/p>\n

But if you unfortunately don\u2019t live more than seven years after you\u2019ve made the gift, they might have to pay IHT. During that seven-year period, your gift is known as a \u2018potentially exempt transfer\u2019 (or \u2018PET\u2019). If you do not survive the gift by seven years, the exemption fails. The PET is counted as part of your estate and is subject to IHT. How much tax is due depends on when it was given \u2013 the rate of tax is lower for older gifts.<\/p>\n

Gifts where you still have an interest in it (no matter when you\u2019ve given it) don\u2019t qualify as a PET \u2013 for example, if you continue to live for free in the house you gave your child more than ten years ago. The house would still be considered part of your estate and therefore subject to Inheritance Tax. This is known as \u2018reserving a benefit\u2019 in the property which you gave away.<\/p>\n

Other\u00a0taxable gifts<\/strong>
\nThe PET is reassessed and added to any other\u00a0taxable gift you may have made in the seven years before making the PET. This has to happen to see whether any tax is now due on the PET itself. This means that gifts made during the 14 years before death could be relevant.<\/p>\n

If tax does become due on a PET, the person who received the PET will be asked to pay the tax. However, the tax due may be reduced because of \u2018taper relief\u2019.
\nThe impact of taper relief in reducing tax due on PETs:<\/p>\n

\u2022 If the gift was made less than three years before death, no reduction in tax is due
\n\u2022 If the gift was made three to four years before death, tax is reduced by 20%
\n\u2022 If the gift was made four to five years before death, tax is reduced by 40%
\n\u2022 If the gift was made five to six years before death, tax is reduced by 60%
\n\u2022 If the gift was made six to seven years before death, tax is reduced by 80%<\/p>\n

Total of taxable gifts <\/strong>
\nIf the seven-year running total of taxable gifts and PETs made comes to less than the tax-free allowance (at the date of death), no tax will be due on the PET. While taper relief may reduce tax on PETs if you die within seven years of making them, it won\u2019t reduce the tax due on your estate.<\/p>\n

The second thing to happen if you die within seven years of making a PET is that the PET is also added to your estate to work out how much tax is due on the estate. If the seven-year running total of PETs, chargeable gifts and your estate comes to less than the unused tax-free allowance, no tax will be due.<\/p>\n

However, if much of the tax-free allowance has been used up against PETs and taxable lifetime gifts, this can leave little or no allowance to be used against the rest of the estate.<\/p>\n

You should also bear in mind that your gift could incur other types of tax, such as Income Tax or Capital Gains Tax. A gift of shares, for example, might incur Income Tax.<\/p>\n

Giving to charity <\/strong>
\nThere is no limit to how much and how often you can give to a charity without incurring IHT. You could also get some relief on other types of tax such as Income Tax when you do this. If you leave at least 10% or more of the \u2018net value\u2019 of your estate, it\u2019s possible to reduce the rate of Inheritance Tax on some assets from 40% to 36%. This could save thousands of pounds.<\/p>\n

Annual \u2018gift allowance\u2019<\/strong>
\nWhile you\u2019re alive, you have a year without incurring IHT. Certain gifts\u00a0don\u2019t count towards this annual exemption. As such, no IHT is due on them. Gifts that are worth more than the \u00a33,000 allowance are subject to IHT. The amount of tax to pay on these gifts depends on whether it was given within seven years before the person died.<\/p>\n

You can carry over any leftover allowance from one tax year to the next, up to a maximum of \u00a36,000. If you do this, you have to use up all your allowance in that tax year. In other words, you can\u2019t accumulate several years\u2019 worth of allowance and use it up in a single large gift.<\/p>\n

Gifting tax-free<\/strong>
\nYou can give as many gifts of up to \u00a3250 to as many people as you want (though not to anyone who has already received a gift of your whole \u00a33,000 annual exemption). None of these gifts are subject to IHT.<\/p>\n

Gifts can also be made to people getting married:\u00a0up to \u00a35,000 from each parent of the couple and \u00a32,500 from each grandparent or more remote relative; \u00a32,500 from the bridegroom to bride (and vice versa) and between registered civil partners; and \u00a31,000 from anyone else.<\/p>\n

If you have enough income to maintain your usual standard of living, you can also make gifts from your surplus income, for example, regularly paying into your child\u2019s savings account, or paying a life insurance premium for your spouse or registered civil partner. To make use of this exemption, it\u2019s very important that you keep very good records of these gifts. Otherwise, IHT is very likely to be due on these gifts when you die.<\/p>\n

The rules for this exemption are complex \u2013 these gifts must be regular, so you need to be committed to keeping up with making these gifts. It\u2019s best to speak to a legal or estate tax adviser first if you want to use this exemption.<\/p>\n

This is a good way of giving gifts on birthdays, Christmas or even to pay life insurance premiums. Grandparents can also use it to pay for things like their grandchildren\u2019s school fees.<\/p>\n

Keeping records<\/strong><\/p>\n

Keeping a record of gifts will help your executor and HM Revenue & Customs calculate how much of your estate (if any) is liable for IHT. Information to include:<\/p>\n

\u2022 What you gave
\n\u2022 How much the gift is worth
\n\u2022 The recipient
\n\u2022 The date you gave it<\/p>\n

Financial security<\/strong>
\nAlthough it is tempting to transfer assets out of your estate in order to minimise IHT, you shouldn\u2019t take risks with your financial stability. Ensuring that you are financially secure, particularly in retirement, should be a priority.<\/p>\n

Once you have made the gift, you no longer have control over the asset in question, so think carefully about the implications before making a decision.<\/p>\n","protected":false},"excerpt":{"rendered":"

Inheritance Tax exemptions Making a gift to your family and friends while you\u2019re alive can be a very effective way to reduce the value of your estate for Inheritance Tax (IHT) purposes and benefit your loved ones immediately.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/posts\/1827"}],"collection":[{"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/comments?post=1827"}],"version-history":[{"count":0,"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/posts\/1827\/revisions"}],"wp:attachment":[{"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/media?parent=1827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/categories?post=1827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jalapenoltd.co.uk\/news\/wp-json\/wp\/v2\/tags?post=1827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}