Can I give away assets during my lifetime without falling foul of inheritance tax or causing potential complications for my Executors upon my death?
If done correctly, with understanding of the relevant rules and with plenty of forward thinking and planning, lifetime gifts can be an extremely useful way of ensuring assets pass to your chosen beneficiaries and can also be effective at reducing a potential inheritance tax liability upon death.
Any gifts made to an individual will fall back into the estate of the person making the gift should they die within 7 years. Taking advantage of the 7 year rule can be a useful way of reducing a large estate where there are concerns about a potential inheritance tax bill on death.
Of course, the future is uncertain and circumstances can change rapidly. Nobody can know how long they might live and whether they will live 7 years after making a gift. Despite this, the 7 year rule can still be an effective method for reducing inheritance tax as the gift becomes subject to taper relief after 3 years, and any inheritance tax is therefore reduced from 40% down to a potential minimum of 8%, compared with a set rate of 40% if the assets simply remain in the estate.
Every individual also has an annual tax free allowance for gifts of £3,000 and if utilised over a number of years can help to reduce the size of an estate and mitigate inheritance tax.
In addition to this, there is no limit on gifts to individuals of up to £250.00 for things such as Christmas or birthdays. There are also no limits on regular gifts made out of income, and depending on your relationship with the intended beneficiary, then gifts of up to £5,000 can also be made in contemplation of marriage.
Please feel free to contact the Society of Will Writers for further information regarding the use of lifetime gifts in estate planning.