What maybe should not be surprising is that a certain politician (or his mother in this instance) was using one of the most old-fashioned rules – gifting with the hope of survival for 7 years.
I thought it would be a good idea to highlight some of the more common methods and rules surrounding gifts.
An estate may not have to pay IHT if the deceased had previously made gifts and that gift can be anything that had a value, like property and possessions, not just money.
The person would have to survive a full 7 years for this to apply and it is not a sliding scale – for example if the person died within the first three years then the full value is added back and taxed at the current IHT rate of 40%. The relief only tapers down over the last 4 years.
An individual does have an annual exemption of £3,000 and there is also no IHT payable on a gift for a child’s wedding up to £5,000 or £2500 given to a grandchild or great-grandchild.
There’s also no IHT on gifts to charities, museums, universities or community amateur sports clubs and perhaps more controversially political parties!
There’s no IHT on gifts to help with other people’s living costs if they’re made to, an ex-husband, ex-wife or former civil partner, a relative who’s dependent on them because of old age, illness or disability or a child (including adopted and step-child) under 18 or in full-time education.
For business owners, there is also an important rule which allows a business or its assets to be passed on at a reduced or zero rate.
As usual and in common with other areas of financial planning, gifting needs careful thought and planning to ensure objectives are achieved. In the next article I will look at one particular solution which has worked effectively for a number of years in respect of helping to fund any potential IHT.
The above is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.