Being generous saves tax
For Inheritance Tax there are some simple annual “use it or lose it” exemptions. What are these, and how can you make sure you take full advantage of them?
Seven Year Rule -
Simply give away as much as possible while you are still alive. This is known as “potentially exempt transfer” or PET. Anything you give away is IHT free, so long as you survive for more than seven years after handling it over. But there are exemptions….
Trusts Trap -
Since 22 March 2006 gifts into trusts are generally chargeable transfers. So transfers of value (gifts) are only PET’s if you make them to another individual (or a gift into a disabled persons trust). So making gifts outright gifts is OK; putting them in the hands of trustees first isn’t.
Common Sense –
Obviously don’t give away anything you might need at a later date. Your children may be willing to hand back money you need later on but they might not be in a position to do so. Remember once you pass on assets you don’t have any further control over them.
Small Gifts Exemption –
Outright lifetime gifts of up to £250 to any one person in a tax year are exempt. This is in addition to the annual exemption of £3000 and applies to any number of gifts that are made to different persons.
Annual exemption –
£3000 can be given away each tax year (April 6 to April 5) free of IHT. This means that even if death occurs within the next seven years, the gift can be ignored. Better still if the £3000 exemption isn’t used in one year it can be used in the following year so £6000 could be given in one year escaping IHT completely.
Last minute cheques –
The taxman says that if the cheque for the gift or annual exemption has not been cleared by the bank before April 6, the gift is not complete.
For more information please contact John Oakley on 01394 279692 / 01394 287051
Ipswich
1-3 Elm Street, Ipswich, IP1 1EY
T: 01473 287051
Felixstowe
York House, 2-4 York Road, Felixstowe, IP11 7QG
T: 01394 279692
