June 27, 2025
Article
As you will be aware, the changes announced during the Autumn Budget have significantly impacted Inheritance Tax (IHT) planning for many taxpayers. With the legislation surrounding this change not having been finalised yet, it leaves many people in a state of uncertainty. Usually, gifts made in the seven years before your death could be liable to IHT, however, there are some gifts that are exempt, which may be useful for you to consider when it comes to IHT planning.
Annual Exemption
Each tax year, every individual has an annual exemption of £3,000, allowing you to give away gifts totalling this value without an IHT impact. Additionally, you are able to bring forward any unused allowance from the previous year meaning you could be entitled to make up to £6,000 of tax-free gifts this year.
Wedding Gifts
If someone you know is getting married this year, you can make a tax-free gift, with the amount dependent on your relationship with the recipient. For marriage gifts to your child, you’re able to make up to £5,000, for a grandchild or great-grandchild it is £2,500, and £1,000 for any other person.
Small Gifts
Gifts of up to £250 per person are allowed each year, with no limit as to how many people you can make these gifts to. The only stipulation is that you cannot make this gift in conjunction with any other gift allowances on the same person. On top of this, there is no maximum limit for birthday and Christmas gifts.
Gifts to Charity
It is worth considering that any charitable donations you make in your will are taken off the value of your estate before inheritance tax is calculated, and where 10% of more of your estate is left to charity the tax rate will be reduced from 40% to 36%. Alternatively, if you wish to make donations to charity before this, you are able to do so tax free.
Gifts out of Income
There is no limit to the amount you can gift another person so long as the money comes from your regular monthly income, provided you are able to afford these payments after having met your usual living expenses. It is always recommended that you keep good records and evidence of these gifts to try to prevent any challenge from HMRC on your estate.
Spouse Exemption
Upon gifting to your spouse, no inheritance tax is incurred, applying to gifts during lifetime and upon death.
Overall, there are many options available for you to consider when it comes to reducing your IHT liability. Due to the new £1 million cap on Agricultural Property Relief and Business Property Relief, as well as the future inclusion of pensions into your estate from April 2027, you may find these small considerations helpful to start to reduce the total of your estate.
If you wish to make use of these gifts it is always recommended that you keep good records and documentary evidence to avoid any uncertainty for you executors calculating your IHT position.
If you would like more information regarding exempt gifts, or other inheritance tax advice, please do not hesitate to get in touch with our team.