Anyone making a lifetime gift should be aware of the inheritance tax implications of making such gifts, although there are some allowances available which allow gifting with no inheritance tax consequences.
Every individual with a permanent home in the UK has an Annual Allowance permitting gifts of £3,000 without any Inheritance Tax consequences each tax year. Any unused Annual Allowance from the previous tax year can also be brought forward one year to offset against gifts made in the current tax year. Therefore, the maximum amount that an individual can offset against gifts in each tax year is £6,000. However, the Annual Allowance is an individual allowance, so a married couple who has not made gifts previously could have allowances worth £12,000 between them.
As mentioned, there are other allowances available should individuals wish to make further gifts in their lifetimes.
Individuals can make any number of small gifts of £250 to different people.
In addition, gifts can be made in consideration of marriage, as follows:
• £5,000 in consideration of marriage of any of your children.
• £2,500 in consideration of marriage of any of your grandchildren or great grandchildren.
• £1,000 in consideration of marriage to any other person.
These gifts must be made on the day of the marriage or before to qualify.
If you choose to make lifetime gifts larger than £3,000 then it is important to note that no inheritance tax is payable at the date of the gifts, but rather a “wait and see” approach applies (unless you are transferring assets into trust). If you survive for 7 years from the date of the gift then the gifted amount will be disregarded, but otherwise some of all of it could be brought back into your estate when calculating the value of your estate for inheritance tax purposes following your death.
Lifetime Gifting and Local Authority Funded Care
Lifetime gifting can be a simple and effective way to reduce an individual’s liability to Inheritance Tax though legal advice, specific to your individual circumstances, should be sought prior to any such gifting.
It is also important to bear in mind that whilst gifting can help reduce an Inheritance Tax liability, there can be adverse consequences if the person making the gifts, then needs to go into care.
Some people wrongly assume that they can avoid care home fees by giving away valuable assets such as their home or large sums of money.
If large sums of money or a home is given away for the purpose of avoiding care home fees, then this can be viewed as a ‘Deprivation of Capital’. The Local Authority, when calculating care home fees, can disregard the fact that the asset has been gifted and can calculate the fees as though the asset is still owned by the person that made the gift if they consider the purpose of the gift was to reduce assets available for care fees. Many estates are never likely to be subject to Inheritance Tax so the argument that large sums of money were given away to reduce Inheritance Tax payable on death can to subject to scrutiny by a Local Authority.
Effect on an Existing Will
Anyone making a substantial lifetime gifting should carefully consider the effect of such gifting on the terms of an existing Will and seek legal advice before making the gift. If substantial lifetime provision has been made for one of the beneficiaries named in a Will then the terms of the Will might need to amended to increase provision for other beneficiaries.
How Can Timms Help?
For further information regarding lifetime gifting, please feel free to contact me either by email at m.kelly@timms-law.com or via telephone on 01283 564030.
