Inheritance tax (IHT) is usually levied on estates valued higher than £325,000 when a person dies and is passing on assts. However, throughout a person’s life they may be able to give away assets in certain ways which could reduce their inheritance costs.
Some people within the older generations may feel the need to engage with gift giving and sharing of wealth in the current climate as coronavirus rages on.
The economic impacts of the disease can be felt hardest by younger generations who have limited resources and make up more of a workforce which is struggling to keep people in work.
On this, Quilter has urged families to get their financial affairs in order so they can understand what support they can provide to their loved ones, while remaining cost-effective.
The company also conducted research into how families feel about gifting, inheritance plans and their ability to give at all.
Ian Browne, a retirement planning expert at Quilter, commented on the findings: “Gifting between the generations is increasingly a lifeline for younger people as they struggle to get on the housing ladder, pay for education and deal with the ever-increasing expenses of living. And now they must do all that while facing another recession.
“Meanwhile, older generations, particularly Baby Boomers, have benefited from an astronomical increase in housing prices, among other things.
“However, it is vital that helping the younger generations doesn’t come at the expense of their own retirement funds and so there is a careful balancing act to figure out if you can afford it.
“As a rough guide we encourage people to look at the Pension and Lifetime Saving Association’s Retirement Living Standards to get an understanding of how much they will need in later life. It is also important to come up with a plan and the associated costs of social care needs.
“For those that can afford to gift, it’s vitally important to consider the various inheritance tax and gifting rules.
“When in doubt speak to a professional financial planner who can help you set up a proper strategy that is suitable for you.”
Under current rules, there is usually no IHT to pay on small gifts made out of normal income, with these being known as exempted gifts.
Gifts can also be made between spouses or civil partners with no IHT paid so long as the receiver lives in the UK.
Other gifts may count towards the value of an estate and a gift can be anything that gas value such as money or property.
Where IHT is due on gifts made during a person’s life, it will be charged on the following tapered scale:
- Gift given less than three before death – 40 percent IHT levied
- Between three and four years – 32 percent IHT levied
- Between four and five years – 24 percent IHT levied
- Between five and six years – 16 percent IHT levied
- Between six and seven years – eight percent IHT levied
- Seven or more years – no IHT due