Are you planning to gift money or property to your friends and family? There are some set of rules governing the ‘gifting’ of money and property you should be aware of – how much you give, how often, and to whom will determines if the gift will be liable for tax.
In the 2015 Summer Budget, George Osborne, the UK Chancellor, announced that a new transferable main residence allowance will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21. This is in addition to the main nil-rate band. It will effectively raise the IHT-free allowance to £500,000 per person.
Gift Tax Changes for 2016-2017
Currently, inheritance tax is charged on the value which is over a £325,000 threshold of someone’s estate (the value of the total assets they leave behind when someone dies). This will remain unchanged however any additional value over the threshold will be charged at 40%
A new tax-free ‘main residence’ band will be introduced from 2017, but it is only valid for a main residence and where the recipient of the home is a direct descendant (classed as children, step-children, and grandchildren). It is being phased in gradually, starting at £100,000 from April 2017, rising by £25,000 each year until it reaches £175,000 in 2020
In 2017 the maximum that can be passed as tax free is £850,000 for married couples or those in a civil partnership, and £425,000 for others. For singles, this is made up of the existing £325,000, plus the extra £100,000. For couples, when the first one dies their allowance is passed to the spouse, so that £425,000 is doubled to £850,000.
In 2020, the tax free amount will rise to £1m for couples, £500,000 for singles, as the main residence allowance rises. Currently, without the ‘main residence’ additional allowance, couples can leave a home worth £650,000 without it attracting inheritance tax (singles £325,000).
On properties worth £2 million or more, homeowners will lose £1 of the ‘main residence’ allowance for every £2 of value above £2 million. So for a couple, properties worth £2,350,000 or more will get no additional allowance.
Inheritance Tax Exemption
People in certain ‘risky’ roles are exempt from paying inheritance tax if they die in active service. These include armed forces personnel, police, firefighters, paramedics, and humanitarian aid workers:
If you die, any assets left to your spouse or registered civil partner, provided they’re UK-domiciled, are exempt from inheritance tax. On top of this, your partner’s inheritance tax allowance rises by the amount you didn’t leave to others, meaning together a couple can currently leave £650,000 tax-free.
You can give £3,000 away each tax year inheritance tax-free
You can give £250 each year to anyone you like
Gifts in consideration of marriage are tax-free, wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child)
Payments to help with another person’s living costs, e.g. an elderly relative or a child under 18
Gifts to charities and political parties
The 7 Year Rule
Money given away before you die is still usually counted as part of your estate, therefore is subject to inheritance tax if you die within seven years of giving the gift and is charged at 40% on gifts given in the 3 years before you die.
Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’. Gifts are not counted towards the value of your estate after 7 years.
If you make large lifetime gifts, the beneficiaries could take out life insurance against the potential inheritance tax bill. Most gifts into trust are now subject to inheritance tax even if made during your lifetime, but this is an area where you would need specialist advice.
Note: The information should not be construed as legal or other advice as it designed as an information source only © More Group 2018. All rights reserved.