Guides & Advice

What lifetime gifts are exempt from inheritance tax?

Published: 1st October 2020
Area: Family

Did you know that you can make certain lifetime gifts, and give money away, without adversely effecting your inheritance tax position? However, some exemptions require careful planning to make sure that you don’t fall foul of technical rules. 

What is inheritance tax?

Inheritance tax is a tax on the estate (assets, property and money) of someone who has died. There is normally no inheritance tax to be paid, so long as: 

  • the value of your estate is below £325,000 (the current threshold); 
  • you leave everything above £325,000 to your spouse or civil partner, or 
  • you leave everything above £325,000 to an exempt beneficiary (such as a charity or certain political parties) 

Where the value of your estate is above £325,000, then the amount above the threshold might be liable for inheritance tax at the current rate of 40%. However, there are ways to reduce (or even avoid) inheritance tax by making gifts during your lifetime so that the value of the gift is disregarded for inheritance tax purposes. 

How much money can I give away without tax implications?

You can give up to £3,000 per tax-year as gifts. If you have not given away the full £3,000 allowance within the previous tax year then you can carry forward the balance of that allowance to the next tax year. However, you can only carry forward an allowance for one year.  

Here we outline the main exemptions from inheritance tax when making lifetime gifts and the limits and restrictions you need to be aware of. 

Gifts between spouses and civil partners

There is no limit to the amount that can be given away by one individual to another individual, as long as the person making the gift survives this by seven years. However, complications may arise if that person has made a gift to a non-individual such as a company or trust. 

Gifts made more than seven years before death

You can make an unlimited number of gifts, not exceeding £250; however, the gifts do have to be to different people. For example, you cannot make a gift of £3,000 to one person and then make a gift of £250 to that same person - if a particular person receives even £1 over the £250 limit in any tax year, then the whole £250 exemption is lost for that person. 

Small gift allowance

Gifts between spouses and civil partners are normally exempt; however, there are restrictions where one of the parties to the marriage (or civil partnership) is not resident for inheritance tax purposes within any part of the UK. I.e. you can give your spouse or civil partner as much as you like during your lifetime, as long as they live permanently in the UK. 

Normal expenditure out of Income

Habitual gifts, which are paid from your excess income and can be made without adversely affecting your standard of living, are exempt from inheritance tax. However, careful record keeping is needed, as HM Revenue & Customs will require proof that the gifts were genuinely made out of excess income if you die within seven years making the gifts.

Living costs

Payments to help with another person’s living costs, such as an elderly relative or a child under eighteen, can be exempt from inheritance tax. 

Gifts to charities and political parties

Gifts to registered charities and political parties are also exempt from inheritance tax. In the case of gifts to political parties, exemption from inheritance tax will only apply when, at the last election preceding the transfer of value, the political party had at least two MPs (or one seat) and a minimum of 150,000 votes. 

Careful planning is needed

We understand that personal tax planning is important – we know you want to look after and protect the wealth you have accumulated, and really make the most of it. If you’re looking to minimise your tax liabilities, or considering making gifts during your lifetime, then speak to a member of your local private client team. 

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Later Living: Unlocking development potential for Retirement Living

15 Jun

Louise Drew, Partner & Head of Building Communities
Later Living: Unlocking development potential for Retirement Living

Our webinar will explore the typologies of housing available, the design, funding and planning […]

Housing: Important forthcoming changes to Local Land Charges being implemented across Local Authorities

7 Jun

Tom Ansell, Partner
Housing: Important forthcoming changes to Local Land Charges being implemented across Local Authorities

In this webinar Tom Ansell, Partner at Shakespeare Martineau is in conversation with Jamie […]

Employment: Post-pandemic working arrangements

27 May

Michael Hibbs, Partner | Lubna Laheria, Solicitor
Employment: Post-pandemic working arrangements

What will working arrangements look like in a post-pandemic future? We look at the […]

Employment Tribunal: Top tips and tactics for the Education sector

20 May

David Browne, Partner | Esther Maxwell, Legal Director
Employment Tribunal: Top tips and tactics for the Education sector

This stimulating and highly practical discussion covers the top tips that institutions need to […]

Our Latest Thoughts

All the latest views and insights on current topics.

Shakespeare Martineau announces Ampa, and leads the way in flexible working

18 Jun

Firm News

Shakespeare Martineau announces Ampa, and leads the way in flexible working

Read article Right Arrow

Ban on evicting commercial tenants extended

17 Jun

Property Disputes

Ban on evicting commercial tenants extended

Read article Right Arrow

Ending soon – the consultation on Audit and Corporate Governance Reform

16 Jun

Corporate & Commercial

Ending soon – the consultation on Audit and Corporate Governance Reform

Read article Right Arrow

Your summer guide to recovery and resilience

15 Jun

Corporate & Commercial

Your summer guide to recovery and resilience

Read article Right Arrow

Build to rent and retirement living – better together

11 Jun

Real Estate & Planning

Build to rent and retirement living – better together

Read article Right Arrow