Exemptions & reliefs

There are a number of exemptions and reliefs that you can use to reduce the potential liability to Inheritance Tax. The main ones to consider are below.

Exempt beneficiaries

Transfers of assets to your spouse or civil partner, as long as they have a permanent home in the UK, to a charity and to some national institutions are exempt.

Annual exemption

You can give away up to £3,000 in each tax year. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires. This is in addition to the other gift exemptions.

Exempt gifts

Some gifts made during your lifetime are exempt because of the type of gift or the reason for making it. These include wedding or civil partnership ceremony gifts, with limits according to the giver; the maximum is £5,000 for a parent. If you make the gift after the ceremony without having promised it first, the exemption won’t apply.

Small gifts

You can make small gifts up to the value of £250 to as many people as you like in any one tax year, but you can’t give more and claim exemption for the first £250.

Gifts from normal expenditure

Any regular gifts you make out of your post-tax income, not including your capital, are exempt as long as you have enough income left after making them to maintain your normal lifestyle. These include:

• monthly or other regular payments to someone

• regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries

• regular premiums on a life insurance policy – for you or someone else

You can also make exempt maintenance payments to:

• your husband, wife or civil partner

• your ex-spouse or former civil partner

• relatives who are dependent on you because of old age or infirmity

• your children, including adopted children and step-children, who are under 18 or in full-time education

Potentially exempt transfers

Other gifts will count towards your estate for Inheritance Tax purposes for a period of seven years after you make them. After seven years they are no longer included and are completely Inheritance Tax free. These gifts are called potentially exempt transfers (PETs).

If you die between three and seven years after making a gift and the total value of gifts you made is over the threshold, any Inheritance Tax due is reduced on a sliding scale known as ‘taper relief’.

If you give an asset away but keep an interest in it, for example you give your house away but continue to live in it rent-free, then the gift will not be a potentially exempt transfer and will be included in your estate even if you live for more than seven years after making the transfer.

Tax reliefs available for properties used in business

You should be aware that there are tax reliefs available for properties used in business which can be used to reduce the Inheritance Tax liability. Business relief, agricultural relief or woodland relief may be available depending on the type of property and how it is used.

Please note

The information which we provide through Lasting Post is in outline for information or educational purposes only. The information is not a substitute for the professional judgment of a solicitor, accountant or other professional adviser. We cannot guarantee that information provided by Lasting Post will meet your individual needs, as this will very much depend on your individual circumstances. You should therefore use the information only as a starting point for your enquiries.