Financial gifts are a way for an individual or a couple to reduce the value of their estate, and reduce the amount of inheritance tax that will have to be paid on that estate when they die.
It is possible to give financial gifts to people, be it property, cash, or shares. However, even once it is given away, it may still count towards a person’s inheritance tax.
If a person gives a gift (such as giving a large sum of money to a child) and the giver dies within seven years, the gift will still count towards their estate and be counted when it comes to working out the amount of inheritance tax that must be paid.
Tax exempt financial gifts
Some forms of gifts are exempt from inheritance tax, and they can be used to reduce the value of an estate before the owner’s death.
Financial gifts to a partner
Anyone is allowed to gift any money that they have to a husband, wife, or civil partner without incurring any taxes, and as long as both of them live in the UK, and the country is their permanent home for tax reasons.
However, gifting money to them will eventually count towards the overall estate when they die, and therefore may not have tax benefits such as reducing inheritance tax.
Charity donations
Money can be gifted to a charitable organisation when the giver is alive, or left to the charity in their will.
Money left in this way will be tax free, and leaving 10 per cent of the net estate to charity will reduce the overall amount of inheritance tax taken.
Cash gifts to others
It is possible to make cash gifts up to a certain limit which will reduce the value of an estate over time, and therefore reduce the amount of inheritance tax levelled at heirs.
- A maximum cash of £250 per year can be given to one individual
- A maximum of £3,000 per year can be given
- A wedding gift of up to a maximum of £5,000 can be given to a child and their partner
- A wedding gift of up to a maximum of £2,500 can be given to a grandchild and their partner
- A wedding gift of up to a maximum of £1,000 can be given to anyone else
Seeking advice
If you are making financial gifts, you should ensure that you keep accurate records of everything given, how much was given, to whom, and when.
It is best to seek financial advice from an accountant or a solicitor when making a financial gift, or making a will.
