Increase in gifting to cut inheritance tax bills

By Lenore Rice

An increasing number of people in Northern Ireland and the rest of the UK are making gifts of assets in order to reduce the inheritance tax bill their family will face after their death, according to new figures.

HM Revenue & Customs (HMRC) expects tax relief on gifting of assets between 3 and 7 years before death will increase to £35million in 2015/16 - up from £30million in the previous tax year. Inheritance tax is not applied to cash, property or assets that are given away more than 7 years before death, but after that there is also tapered relief on gifts made within 3 to 7 years of death.

An estate is liable to pay inheritance tax at the rate of 40 per cent if it is valued above the £325,000 threshold - doubled to £650,000 for people who are married, widowed or in a civil partnership. Lifetime gifting is therefore a popular way to pass on assets and thereby reduce the value of the estate and the amount of inheritance tax payable.

There are however certain restrictions on gifting that people need to be aware of:

  • There is a £3,000 gift limit each year, but you can roll the balance over to the next year if you do not reach the limit
  • Small additional gifts of up to £250 are permissible on top of that, and larger gifts up to the value of £5,000 can also be permissible if certain criteria is satisfied
  • Gifts within 3 and 7 years of death are not completely exempt from inheritance tax. The liability within 3 years is 80 per cent of the normal inheritance tax amount, and it reduces by 20 per cent every year - at 7 years there is therefore no inheritance tax liability at all
  • The transfer of assets must be effected completely. So for example, with a property you must complete the registration of the new owner in the Land Registry to qualify for gift relief
  • The rules in respect of inheritance tax on gifting does not cover other taxes such as capital gains tax so you should take advice before selling assets in order to make a gift

If you require legal advice about making a gift, inheritance tax, writing a Will, estate planning, bereavement services, or any other matter, contact one of the Wills and Estate solicitors at Wilson Nesbitt in Belfast or Bangor by calling 0800 840 9293.