Tel: 01189469717, Email: ion@assets.ltd.uk, Chiltern Chambers, St Peters Avenue, Caversham, Reading, Berkshire, RG4 7DH
Assets Financial Services
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  • Home
    • About Us
    • What We Do And How We Work
    • Our Service Principles
    • Contact Us
  • Saving for Retirement
    • Personal Pensions
    • Self Invested Pensions - SIPP and SSAS
    • SIPP Commercial Property Purchase
  • Retirement Choices
    • Annuities
    • Flexible Retirement - Drawdown and Phased Retirement
  • Investment
    • Investment Process
    • Collective Investments
    • VCT and EIS
  • Estate Planning
    • Wills & Power Of Attorney
    • Making The Most Of Allowances
    • Trust Based Schemes
    • Other Strategies - BPR/AIM and Life Assurance
  • Corporate
    • Key Person, Co-shareholder and Relevant Life Cover
    • Pension Arrangements For Businesses
    • Other Employee Benefits
  • Other Services
    • Equity Release
    • Insurance Services

Making The Most Of Gifts and Allowances

There are important exemptions that allow you to pass your assets on to other people without Inheritance Tax.

Potentially Exempt Transfers

We can usually make unlimited gifts to individuals and if we survive for seven years after making the gift it will usually escape Inheritance Tax.  If a gift is made to an individual person or very specific Trusts (in favour of a disabled person or bereaved minor) and does not fall within one of the allowances or exemptions it will usually be a 'Potentially Exempt Transfer' (PET). Gifts to most other Trusts no longer qualify as PETs and are usually subject to lifetime rates of Inheritance Tax at 20% if the nil rate allowance is exceeded.

A PET is completely free of Inheritance Tax if you live for seven years after you make the gift and taper relief applies progressively after three years. You can make unlimited PETs both in size and number. 

Therefore, if you give all of your estate away and live seven years your estate can escape Inheritance Tax entirely although most of us are not able to survive without any assets and do not wish to give up control. Should you still retain an interest in an asset you have gifted it may still be treated as part of your estate and liable to Inheritance Tax indefinitely. A common instance would be where a person gives their house to their children and carries on living there rent free.  The house will still be liable for Inheritance Tax. However, if a full commercial rent were paid the gift would usually count as a PET.

Reusing the Nil Rate Allowance

We can give assets to most trusts whilst we are alive without facing any Inheritance Tax provided that we live a further seven years and the nil rate allowance (currently £325,000) is not exceeded by the present gift and other chargeable transfers made within the previous seven years.  We can then benefit from a further nil rate allowance if we survive a further seven years and a married couple can remove £650,000 total from Inheritance Tax every seven years.

This is a simplified summary of complex legislation - please seek advice!

Exempt Beneficiaries

  • Gifts to certain people and organisations are exempt, whether you make them during your lifetime or in your will:
  • your husband, wife or civil partner, even if you're legally separated (but not if you've divorced or the civil partnership has dissolved).  You must both have a permanent home in the UK
  • UK charities
  • Institutions including museums, universities and the National Trust
  • UK political parties
Exempt Gifts

Wedding gifts/civil partnership ceremony gifts -Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax.  Parents can each give £5,000, grandparents and other relatives can each give £2,500, anyone else can give £1,000

Gifts For Maintenance -You can make Inheritance Tax-free maintenance payments to:

  • your husband or wife
  • your ex-spouse or former civil partner
  • relatives who are dependent on you because of old age or infirmity
  • your children  who are under 18 or in full-time education
Small gifts -You can make up to the value of £250 to as many people as you like in any one tax year without Inheritance Tax liability. But you can't give a larger sum and claim exemption for the first £250.

This exemption cannot be used in conjunction with any other exemption when making gifts to the same person. 

Annual exemption - £3,000 may be given away in each tax year without Inheritance Tax liability. All or any part of the £3,000 exemption that you do not use in any tax year may be carried forward to the next, but no further. Therefore, you could donate up to £6,000 in any one year if you had a completely unused allowance from the previous year.

Our 'annual exemption' may be combined with any other exemption except the 'small gifts exemption'.

Gifts out of normal expenditure - Gifts made out of your after-tax income are exempt from Inheritance Tax if they are part of your regular expenditure and do not affect your standard of living.  Gifts from capital are not exempt.  Exempt gifts include:

  • monthly or other regular payments to someone
  • regular premiums on a life insurance policy (for you or someone else)
Good practice would suggest that you keep a record of your gifts, after-tax income and normal expenditure. You may need to demonstrate that the gifts are regular and that you have enough income to provide them and your usual  expenditure without spending capital. However, the amount gifted need not be the same from year to year, provided that they are regular and do not affect your standard of living.

We have many years experience of providing independent financial advice regarding estate planning for people in Brighton, Hove, Sussex ,London, Reading and the South East. If you would like a 'no obligation' chat about the choices available to you please contact us.

Assets Financial Services is a trading style of Sage Roxborough Ltd,  which is authorised and regulated by the Financial Conduct Authority. Sage Roxborough Limited is entered on the FCA register (https://register.fca.org.uk/) under reference 718005. The information and content of this website is intended for UK consumers only and is subject to the UK regulatory regime. The FCA does not regulate some forms of mortgages and tax planning advice. Registered office 168 Church Road, Hove, BN3 2DL. Registered in England No. 05478319
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