HMRC has published new guidance for working out IHT due on gifts, including how to find out which gifts count towards the value of the estate, how to value them and how to work out how much IHT may be due.
To work out which gifts to include in calculations, HMRC suggests following these steps:
- List in date order all of the gifts the person who died made in the last 7 years that are not exempt, starting with the oldest first.
- Keep a running total of their values.
- Check the list to see where the running total goes over the £325,000 threshold. Tax will be paid on:
- the part of any gift that took the running total over the threshold,
- any gifts made after the threshold.
Masood died on 1 June 2021 when the Inheritance Tax threshold was £325,000. In the 7 years before he died, he gave the following gifts (after deducting all those that were exempt).
|Date||Value of gift||Running total|
|23 Aug 2014||£150,000||£150,000|
|12 Dec 2014||£100,000||£250,000|
|21 Jul 2015||£50,000||£300,000|
|15 Mar 2017||£30,000||£330,000|
|03 Jun 2019||£17,000||£347,000|
|06 Jan 2021||£10,000||£357,000|
When the March 2017 gift is added, the running total goes over the threshold. So IHT is due on that gift and all of the later gifts.
However, on the gift made in March 2017, IHT is only due on the part of the £30,000 gift that brought the total above the threshold. So for that gift, tax is payable on £5,000 (£330,000 running total – £325,000 threshold = £5,000 excess over the threshold).
The guidance also contains similar examples to the above for gifts with reservation of benefit, potentially exempt transfers, gifts exempt from IHT and pre-owned assets.
The full guide may be accessed here.