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Gifts and exemptions from Inheritance Tax: explained

Sarah Conner

Article written by Sarah Conner, Solicitor, Private Client Department

As part of Inheritance Tax (IHT) planning, or simply in terms of passing on wealth to the next generation, you may consider gifting money or property to family or friends. However, there are several things you need to know about gifting and IHT. This article provides an overview of gifting and IHT, including who you can gift to, how much you can gift, and what it means if you continue to benefit from the gift.

Giving away money or property to avoid IHT

One of the easiest ways to mitigate your IHT liability is to gift money (or property) to friends, family, or a charity while you are still living. There are some gifts you can give in your lifetime which will not incur tax after your death, including gifts to your spouse or civil partner. If you make a gift seven years before your death, it will usually be excluded from the value of your estate for IHT purposes. Gifting can be a complex area, so we would strongly suggest you speak to a solicitor about gifts as part of the estate planning process.

Who can I give gifts to and avoid IHT?

Gifts to your spouse or civil partner are usually tax-free. However, this does not apply to unmarried partners or cohabitants. If you wish to leave gifts to other family members or friends, you should put some planning into the process to determine the most tax-efficient way to do this. There is an annual exemption for IHT of up to £3,000 each year you are alive. You can roll over your exemption amount for up to one year. So, for example, if you do not use any of your allowance in 2021, you can gift up to £6,000 in 2022.

Small gifts

You can give small gifts of up to £250 per person, such as for birthdays or Christmas presents, unless another exemption has been used for the same person.

Wedding gifts

There is also an exemption for wedding gifts, with how much you can gift dependent on your relation to the couple getting married. If you are a parent, you can gift up to £5,000. If you are a grandparent or great-grandparent, you can gift up to £2,500. For everyone else, the exemption threshold is £1,000.

Retained benefit

You cannot gift someone something if you will still benefit from the gift in your lifetime. The most common example is where a parent gifts their home to their child but continues to live in the property rent-free until they die. When this is the case, the property will still form part of the estate in the event of death.

For further information on gifting and IHT planning or to discuss a Private Client matter, please feel free to email me or contact the team on 020 8858 6971.