These days, a lot of people gift parts of their estate to their intended beneficiaries before they pass away. Her Majesty’s Revenue and Customs (HMRC) recently issued the following guidance on how to work out how much tax, if at all, you should pay on gifts.
Some gifts are exempt from inheritance tax, especially those that were made more than seven years before the person dies. However, not all gifts are exempt.
With those gifts that were made seven years before someone dies, a gift is normally referred to as a potentially exempt transfer. Gifts count as money, property or possessions—anything with value that reduces the estate’s total value and any loss that the gift incurs must be included.
Difference in value
If someone sells their house to a relative for less than its market worth, for example, then the difference in value is a gift.
Outright gifts are those where value is transferred to someone else without condition. Exemptions include trusts, gifts where a person still has in interest and pre-owned gifts.
When working out what inheritance tax is due on an estate, all gifts that are not exempt should be listed in date order. Where the running total exceeds £325,000, inheritance tax will be due on the part of any gift that took the running total over that amount and any subsequent gifts made afterwards.
Assets passed to a spouse
Gifts that are exempt from inheritance tax include assets passed to a spouse or civil partner, gifts to qualifying charities or housing associations, potentially exempt transfers, gifts of less than £3,000 or less in any tax year, small gifts of £250 or less, and wedding or civil partnership gifts.
Anyone who leaves 10 percent or more of their net estate to charity ensures that their heirs pay a reduced rate of inheritance tax on the estate – 36 percent.
Outright gifts to UK political parties are exempt, as long as at the last general election before the gift, the party had at least two members in the House of Commons.
Income tax charges
Income tax charges can apply if someone gives away assets during their lifetime and continues to benefit from them. Instead of paying income tax, then someone can elect to pay inheritance tax those this election cannot be made after the person’s death.
Pre-owned assets include land and buildings in the UK, chattels such as cars and boats, leases for properties or stocks and shares.
Relief from inheritance tax may be available if the person who died owned a business, a farm woodland or National Heritage property.
Please note: this article is intended for information only. Please seek professional advice on tax planning for estates. You can read the full article on HMRC’s updated guidance on gifts here.
Finders International trace missing beneficiaries to estates, properties and assets. To see a full list of our services, please visit our website. Alternatively, you can contact us via telephone +44(0) 20 7490 4935 or email contact@findersinternational.co.uk
This article was submitted to be published by Finders International as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.
