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Rules on Giving Gifts As a Part of Inheritance Tax Planning

There are many legal provisions in place that can be used to reduce the amount of inheritance tax you will need to pay. One of the simplest of these is making gifts. Giving a gift to your family and friends while you’re still alive can reduce the value of your estate, and therefore the amount of inheritance tax you will pay in the event of your death. Giving gifts will also benefit your loved ones immediately. However, estate planning can be a complicated process and it is important to seek financial advice before you make any sizeable gifts.

Giving Gifts:

Some gifts you make during your lifetime are exempt from Inheritance Tax, providing you live for another 7 years after the gift is made. However, gifts made in the 7 years prior to your death may be subject to inheritance tax depending on:

  • Who you made the gift to and their relationship to you
  • The gift’s worth
  • When you gave the gift

If you have any questions about any gifts you’ve recently made or are planning to make, and its impact on your inheritance tax bill, one of our financial advisors at Thornton and Baines will be able to give you some advice over a free Zoom call.


What is an eligible gift?

A gift can include the following:

  • Money
  • Household or personal items, such as furniture, jewellery or antiques
  • House, land or buildings
  • Stocks and shares

However, if you make these gifts and die before the 7 year time period has elapsed, inheritance tax may still be charged on them.

What is the ‘annual gift allowance’?

While you are still alive, you have an annual inheritance tax free gift allowance worth £3,000.

This means that you can give away up to £3,000 each year without it being added to the rest of your estate for inheritance tax purposes. Furthermore, any part of your annual exemption that hasn’t been used can be carried over. However, it can only be used in the following year and not the year after that.

Gifts worth more than your £3,000 tax free allowance may be subject to inheritance tax when you die.

Gifting to charity in your will

Any cash or asset you decide to leave to charity in your will is exempt from inheritance tax. Leaving gifts to charity can also reduce your inheritance tax rate from 40% to 36%. However, this reduced inheritance tax rate will only apply if the amount gifted to charity comprises at least 10% of the ‘net estate’ at the date of death. This reduction could potentially save thousands of pounds in inheritance tax.

The net estate is defined as the amount left over minus any exemptions (including your nil rate band) and any other available reliefs. As this can be a fairly complicated area, you may wish to seek financial advice before making any change to your will. One of our advisors at Thornton and Baines will be happy to provide you with some advice over a free zoom call.

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