Inheritance tax gifts – when are you exempt?
When it comes to inheritance tax, if your estate is worth more than the £325,000 tax threshold there are in fact some important gifts that you can give to others that will be exempt from tax.
Some gifts made during your lifetime are exempt from inheritance tax simply because of the type of gift that they are, and the reason for donating them.
Wedding/civil partnership ceremony gifts are exempt from the tax subject to limitations for instance. This means that parents can give cash gifts worth £5000; grandparents and great grandparents can each give cash or gifts worth £2500 and anyone else can give cash or gifts worth £1000.
There are also annual exemption gifts in place. This means that you can give away gifts of up to £3000 in each tax year and these gifts will then be exempt from inheritance tax when you die.
As well as gifts that are exempt, there are also beneficiaries and ‘donees’ who are not liable. You can give gifts to your wife, husband or civil partner as long as they have a permanent home in the UK; a political party that has at least two members elected in the House of Commons or has one elected member but the party received at least 150,000 votes; national institutions such as universities and museums; and a ‘qualifying’ charity established in the EU or another specified country.
It is worth bearing in mind that any gifts you make to individuals will be exempt from inheritance tax as long as you live for seven years after making the gift. These gifts are known as potentially exempt transfers or ‘PETs’. However, if you die within seven years of making a gift and the gift is valued at more than the inheritance tax threshold, tax will need to be paid on its value, either by the person receiving the gift or by representatives of the estate.