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Gifting Money or Assets for Inheritance Tax Exemption

By: Mike Watson - Updated: 7 Sep 2012 | comments*Discuss
Inheritance Tax Tax Gifts Spouse Wife

In it natural that you will want as much of your wealth to go to your friends and families, and for this reason it pays well to take advantage of the laws relating to inheritance tax and the giving of gifts, which can exempt sums of money, property or other gifts from being liable to Inheritance Tax at all.

There are two principle ways to avoid inheritance tax being paid on gifts: 1) Take advantage of the ‘Seven Year Rule’ (which, to be sure entails some guess work and a bit of luck! 2) Give certain gifts which are legally exempt from Inheritance Tax.

The Seven Year Rule

Under the Seven Year Rule if a gift is given to someone and the benefactor lives longer than seven years from the donation of that gift no inheritance tax will be payable. If the benefactor dies within seven years inheritance Tax will be payable if the value of the deceased persons estate exceeds the £300’000 threshold. Gifts can be made with a view to taking advantage of this rule and will be a lot safer if the person who gives the gift is married as if this is the case and both partners in the marriage are domicile in the UK at the time of death the estate will be passed on to the surviving partner (non-domicile partners will be exempt from the tax up to a limit of £55’000).

For obvious reasons the Seven year rule can never be a precise science and cannot be relied upon as a means to avoiding inheritance tax. However, as a means of avoiding incurring inheritance tax on large donations it is well worth considering. Above all, remember there is nothing to lose, although if the receiver of the gift has counted on not having to pay inheritance tax there could be a double shock if the deceased passes away early. Never rely on the Seven Year Rule as a means ensuring financial security.

Please not that donations to trusts and companies do benefit from the Seven Year Rule (see related article).

Other Exempt Gifts

Other exempt gifts include wedding gifts of up to £5’000 for each of year children, £2’500 for each grandchild and £1’000 to anyone else you know and wish to give to. You can give further gifts of £3’000 within a tax year, and this rolls over to the next year should you not use your allowance (note that the same person could be given a gift several years I a row, but that it would be taking a risk to save this gift up over the course of several tax years). Finally, any number of gifts of £250 can be made within a year, and gifts can be made up to any amount to charities, national art galleries and any registered U.K. political party.

All gifts to a spouse or civil partner will be exempt. A civil partner is a same sex partner that a benefactor lives with as if they were married. A civil partnership must be recognised legally in order for benefits to be received.

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