Lifetime Gifting in the UK
With the relatively low UK inheritance tax threshold of £325,000 per person, it may be important for individuals with sizable UK assets to think about opportunities to transfer their assets out of their own names at a certain point in time to mitigate any UK tax payable at their death. If this is done properly, it can be a great way of preserving assets for the next generation.
Very simply, a gift can be considered to be anything that has a value whose ownership is transferred from one person to another. This can be money, property or possessions. If for instance, someone transfers an asset to another person for less than its worth, the difference in value will count as a gift.
When a person makes an outright gift to another individual or to a trust and it is not covered by one of the exemptions below, then it is considered to be a Potentially Exempt Transfer, or PET. The value of the PET is typically the value of the gift that is not covered by any exemption. When giving a PET, the owner must live for 7 years after giving the gift. If they die within the seven year window then their estate or the person who received the gift will have to pay inheritance tax on it. The amount due is reduced on a sliding scale if the gift was given away between 3 and 7 years before the person died. The rates of taper relief are outlined below:
There are certain gifts made by an individual that are exempt from inheritance tax. These exemptions include:
• Gifts between spouses or civil partners
• Annual exemption of £3,000 given away each tax year – any leftover annual exemption can be carried over from each tax year to the next but the maximum exemption is £6,000.
• ‘Small’ gifts not exceeding £250 per person
• Regular gifts from surplus taxable income – the giver must still have enough money to maintain their normal lifestyle
• Payments to help with other’s people’s living costs including an ex-spouse, a dependent relative or a child under 18 years of age or in full-time education
• Gifts in consideration of marriage or civil partnership up to £5,000 for a child, £2,500 to a grandchild or great grandchild and £1,000 for other individuals
• Gifts to charities
• Gifts to political parties
Understanding how and what you can give away in your lifetime without incurring a tax charge is useful planning to ensure you do not pay any unnecessary taxes upon your death.
For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.
Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.