Gifts and IHT

tigerspill

I am thinking about IHT and gifts.

I am aware that gifts to charities are exempy from Income and Inheritance tax.  
And also, that £3,000 in total can be gifted to others and are exempt from IHT.

However, looking at the HMRC paage at https://www.gov.uk/inheritance-tax/gifts, it seems to suggest that further gifts can be given at Christmas and Birthdays and be exempt from IHT as long as they are from surplus regular income.

So using the below example, can I check I have understood this correctly. This is ignoring the seven year survival rule.

If I have say £30,000 income per year from my occupational and state pensions.  And I generally use £20,000 to live on.  And I make a gift of £3,000.  Does this mean that I can make further gifts at Christmas / Birthdays up to £7,000 that would then be exempt from IHT?

Thanks.

Keep_pedalling

The £3000 Is not an allowance it is an exemption, birthday and Christmas gifts are the usual usual sort of family gifts not large sums of money.

If your income exceeds your expenditure then you can also make exempt gifts from excess income (the £3000 annual exemption can come out of savings so does not count as expenditure). This requires you to geek very good records of both the gifts and expenditure, otherwise your executors will struggle to be able to claim it. 

Any non exempt gifts you make stay in your estate for 7 years.

What is your net worth and marital status? Do you have children?

iamold

Hi,
I am looking for clarification on a related matter:-

I have been gifting my children over several years and have just about used up my £350K nil band IH tax allowance. I am aware of the "7 year clawback" arrangement whereby the rate is reduced to zero progressively from year 4 to year 7.  However, it is my understanding that this "progressive clawback" arrangement only applies to gifts that exceed the £350K nil band allowance and that the full value of earlier gifts that fall within the £350K nil band allowance only become IH tax exempt after the full 7 years. Is my understanding correct?

Keep_pedalling

iamold said:

Hi,
I am looking for clarification on a related matter:-

I have been gifting my children over several years and have just about used up my £350K nil band IH tax allowance. I am aware of the "7 year clawback" arrangement whereby the rate is reduced to zero progressively from year 4 to year 7.  However, it is my understanding that this "progressive clawback" arrangement only applies to gifts that exceed the £350K nil band allowance and that the full value of earlier gifts that fall within the £350K nil band allowance only become IH tax exempt after the full 7 years. Is my understanding correct?

The term you are looking for is taper relief, and yes it only applies to gifts over the previous 7 years that take you over the NRB. Spreading gifts over a number of years reduces the effectiveness of this as for example if you gift £50k away per year for ten years before you die the calculation will be on the last 7 years and the first 3 gifts will already have dropped out of your estate so the total gifts counting to IHT will only be £325k, and as the gift which took the total amount over your NRB was only made in the last year of your life TR will not apply.