Inheritance Tax is charged on your estate at date of death
You are liable for all your property in the UK and elsewhere. If you are not living in the UK then the tax only applies to property you own in the UK.
There is no Inheritance Tax charged between you and your spouse or civil partner but on the death of your partner, a sizeable tax charge may be levied. Note: if you have an unmarried partner, or a partner that you’re not in a registered civil partnership with, gifts are not exempt and unless given more than seven years before your death will be included in your estate.
There are several ways to protect your estate. Below are some examples. It’s complex and you need to get this right so we don’t go into all the detail here; we simply highlight what’s possible and recommend you seek professional advice.
You can give away gifts each tax year, exempt from Inheritance Tax. You can carry forward any unused part of the exemption threshold to the following year, but if you don’t use it in that year, the carried-over exemption expires.
Some gifts made during your lifetime are exempt from Inheritance Tax because of the type of gift or the reason for making it – see below.
Wedding gifts/civil partnership ceremony gifts
Wedding or civil partnership gifts are exempt from Inheritance Tax up to a limit depending on whether you are parent, grandparent or other. You have to make the gift – or promise to make it – on or shortly before the date of the wedding or ceremony. If the ceremony is called off and you still make the gift or if you make the gift after the ceremony without having promised it first – this exemption won’t apply.
You can make small gifts up to the value to as many individuals as you like in any one tax year. You can’t use this allowance together with any other exemption when giving to the same person.
Regular gifts or payments
Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts only qualify if you have enough income left after making them to maintain your normal lifestyle. These include:
- monthly or other regular payments to someone
- regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
- regular premiums on a life insurance policy – for you or someone else.
Regular maintenance payments to:
- your husband, wife or civil partner
- your ex-spouse or former civil partner
- relatives who are dependent on you because of old age or infirmity
- your children and any adopted children or step-children under 18 or in full-time education.
Potentially exempt transfers
- If you give an asset away but keep an interest in it – for example you give your house away but continue to live in it rent-free – this will not be a potentially exempt transfer.
- Outright gifts paid to individuals or into trusts for disabled people are exempt as long as you live for 7 years after making the gift. If you die within 7 years then the value of the gifts is added to your estate and any tax due is paid out of the estate. If the value is more than the threshold, Inheritance Tax will be due. If you die between 3 and 7 years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as ‘Taper Relief’.
Chargeable transfers are other gifts eg gifts to most types of trust. This is where someone has gifted more than the current threshold. Again, complicated, so get advice.
See HMRC’s website for information and forms.
Get professional help
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