personal finance

Inheritance tax on gifts: What is taper relief? How much can you give family each year?


Inheritance Tax is the tax on the estate – so property, money and possessions – of someone who has died. It’s normally not payable if the value of the estate is below the current £325,000 threshold, or if everything above this threshold is left to a spouse, civil partner, charity, or a community amateur sports club. The standard Inheritance Tax rate is 40 per cent, with this only being charged on the part of an estate that’s above the threshold. Some people may wish to gift part of their estate to loved ones during their lifetime.

Upon their death, the gifts may then be taxed.

However, Gov.uk explain that depending on when the gift was given, “taper relief” might mean that the Inheritance Tax which is charged on the gift comes in at less than 40 per cent.

A person can give small gifts out of their normal income, such as for Christmas or as birthday presents, without paying Inheritance Tax. These are known as “exempted gifts”.

When it comes to giving gifts to a spouse or civil partner, a person can give them as much as they like during their lifetime, provided that one lives in the UK permanently.

According to Gov.uk, a gift can be anything that has a value, and this includes money, property, and possessions.

A gift may also be a loss in value when something is transferred.

An example of this is if a person sells their house to their child for less than it’s worth, with the difference in the value counting as a gift.

A person can give away £3,000 worth of gifts each tax year – which spans from April 6 to April 5 – without them being added to the value of their estate. It’s known as an “annual exemption”.

It is possible to carry forward any unused annual exemption into the next tax year.

It’s also possible to give wedding or civil ceremony gifts which are worth up to £1,000 per person.

This rises to £2,500 if it’s for a grandchild or great-grandchild, and £5,000 for one’s child.

Normal gifts which won’t affect a person’s standard of living, gifts to charities and political parties, and payments to help with another person’s living costs may also be given away.

Gifts worth up to £250 per person may be given as many times as one wants each tax year, provided another exemption has not been used on them.

If Inheritance Tax is payable on a gift has been given between three and seven years before death, then the tax that is paid on them will be at different rates.

This is according to the length of time, in terms of years, between the gift being given, and a person’s death.

If it was seven years or more, then the tax paid will be charged at zero per cent.

Should the gift have been given between six and seven years before the giver’s death, the tax is paid at eight per cent.

For gifts given between five and six years before the giver’s death, tax paid will be at the rate of 16 per cent.

This rises to 24 per cent between four and five years before the individual’s death, and 32 per cent if it was between three and four years.

Should the gift have been given less than three years before on’e death, then the tax paid will be at 40 per cent.



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