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Gifting – The Rules
When the time comes to distributing your legacy, you can give away as much you want. However, your executors will have to pay inheritance tax before your assets can pass to your beneficiaries. With this in mind, some careful planning and the right guidance can make a difference to the tax you pay.
The Rules on Gifting
Should your entire estate be valued at less than £325,000 then you won’t have to pay inheritance tax, however, there are reliefs and exceptions. Each tax year, you can give away £3,000 as gifts while there will be no inheritance tax to pay on this. This is known as an annual exemption, however, if you pass away within seven years of gifting, then any gifts over this threshold will be liable to tax. However, if the exemption is not used in one tax year then it can be carried over.
Is it Possible to Make any Other Gifts?
The aim is to not give away too much so that it affects your standard of living. If you do want to make other gifts for birthdays or at Christmas as an example, then they must be paid from your annual income and you must have enough income to continue to live at your usual standards.
During any tax year, individuals can make as many transfers as they wish, up to the value of £250 to as many people as they want. These gifts cannot be combined with the £3,000 annual exemption and they cannot exceed £250.
There are specific occasions where you can gift more than your annual exemption such as paying for a wedding. If you have a child who is getting married then you can give them £5,000 to cover the cost of the wedding while grandparents can give their grandchildren £2,500 and £1,000 to others. Each year, it is also possible to give a gift as a way of helping someone cover their living costs such as an elderly relative or a child under 18.
When it comes to inheritance planning and managing your finances in the most efficient way, it is important that you make the right choices while staying within the boundaries of what is acceptable. With the correct financial advice, you can make the right choices so that your inheritance tax bill can be significantly reduced while still remaining within the confines of the law.