Giving to save tax
Inheritance Tax (IHT) is something that affects more people than ever and is expected to double by 2020. In 2015/15 the tax office collected over £3.4 billion.
One way to defeat IHT is to make gifts before you die. Here are some ideas how to gift effectively.
Make use of the annual transfer’s allowance of £3,000 which can be carried forward one year. Small gifts of £250 per person a year is also exempt. You can also make gifts up to £5,000 if you are the parent of a child getting married. Grandparents and the other person getting married can give £2,500 – everyone else can give £1,000.
Make sure you give away your money before it is too late. If you survive seven years the gift is outside your estate. Bear in mind that you can insurance against IHT on an early death – just make sure the insurance proceeds go into trust, not your estate otherwise there will be tax on that.
One way around the seven year rule is to claim the gift is normal expenditure out of income. For the tax office to agree, you need to be able to show a pattern of expenditure. So, it can be better to do regular (perhaps monthly or quarterly) gifts rather than one large one.