45% of gifters unclear on Inheritance Tax rules

inheritance tax

 

 

More than half of people making large gifts of money or assets are unaware of Inheritance Tax rules that might apply to them.

 

 

 

Research of 2,090 people conducted on behalf of HMRC found that only 45% of those who had recently made a gift knew about the rules at the time they made it. Knowledge of inheritance tax rules was found to be relatively low, and even among those who were aware of them, 18% said the rules had influenced their decision to make a gift.

 

A gift can be anything that has a value, such as money, property, possessions or a loss in value when something’s transferred, for example if you sell your house to your child for less than it is worth, the difference in value counts as a gift.

 

There are a number of exemptions to this, depending on the value and type of gift, and when you made it. You can give away £3,000 worth of gifts each tax year without the amount being added to the value of your estate. This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year - but only for one year.

 

Each tax year, you can also give away:

• wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)

• normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift

• payments to help with another person’s living costs, such as an elderly relative or a child under 18

• gifts to charities and political parties

 

You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for their birthday and wedding in the same tax year.

 

Around 13% of people surveyed were identified as ‘gifters', having given a single gift of £1,000 or more, or multiple gifts of £250 or more that totalled at least £3,000, in the two years.

 

Those more likely to be affected by Inheritance Tax were also more likely to give gifts of this size, with 51% of over-60s with substantial wealth doing so.

 

Inheritance tax is applied at 40% on the value of an estate that exceeds £325,000, although this threshold can change under certain conditions. Gifts made 3 to 7 years before a death are taxed on a sliding scale.

 

Years between gift and death

Tax paid

Less than 3

40%

3 to 4

32%

4 to 5

24%

5 to 6

16%

6 to 7

8%

7 or more

0%