Do you pay inheritance tax on lifetime gifts?
Most people will have heard of the '7 year rule' with regard to inheritance tax payable on gifts made during a person's lifetime. Often the rules are confused and misinterpreted.
Current HMRC guidelines outline that any gifts totalling over £3,000 in any one tax year (e.g. 6 April 2019 to 5 April 2020) could potentially be subject to inheritance tax if you die within 7 years of making the gift. However, inheritance tax will not be payable at all if the whole value of your estate (including gifts of any value) does not total more than £325,000. It is also possible to use the previous tax year's £3,000 exemption if it has not already been used.
The guidelines further state that you can make the following gifts which would not be subject to taxation:
- Small gifts of up to £250 per person (as long as no other exemption is used)
- Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild and £5,000 for a child)
- Normal gifts out of your income, for example Christmas or birthday presents (you must be able to maintain your standard of living after making the gift)
- Payments to help with another person’s living costs, such as an elderly relative or a child under 18
- Gifts to charities and political parties
If you're estate is unlikely to be subject to inheritance tax then you can make any number of gifts of any value. Please do bear in mind that once a gift has been made it cannot necessarily be recouped.
If you require advice or have any particular concerns in this area then please contact one of our specialist advisors for further information.