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Wealth Protection

A quarterly newsletter covering topical issues relating to wealth matter including tax planning, wills, power of attorney, trust and family law. The bulletin is designed to provide useful information and advice to business owners, entrepreneurs, family businesses, those who are retired or coming up to retirement and those in senior management across all sectors.

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Inheritance Tax Exemptions

Friday 24th October 2014

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Wealth Protection Bulletin - Issue 13

If your estate is worth more than the Inheritance Tax threshold (“nil rate band”) - £325,000 for the tax year 2014/15 – there are some important Inheritance Tax exemptions that allow you to make gifts and not have to pay tax on them.

Exempt beneficiaries

You can make gifts to certain people and organisations without having to pay Inheritance Tax. These gifts are exempt whether you make them during your life or as part of your Will.

You can make exempt gifts to your husband, wife or civil partner (as long as they have a permanent home in the UK) and to charity.

Annual Exemption

You can give away gifts up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. 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.

Wedding / Civil Partnership Ceremony Gifts

Wedding or Civil Partnership Ceremony gifts are exempt from Inheritance Tax subject to certain limits.

  • Parents can each give cash or gifts worth £5,000
  • Grandparents and Great Grandparents can each give cash or gifts worth £2,500
  • Anyone else can give cash or gifts worth £1,000.
Small Gifts

You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year. However, you can’t give more than £250 and claim that the first £250 is a small gift. If you give an amount greater than £250 the exemption is lost altogether.

Regular gifts or payments that are part of your normal expenditure

Any regular gifts you make out of your after tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal lifestyle.

This exemption can be particularly helpful in funding regular gifts to children or grandchildren or to make regular payments of premiums on a life insurance policy.

The 7 Year Rule – potentially exempt transfers

Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for 7 years after making the gift.These gifts are known as potentially exempt transfers.

If you die within 7 years and the total value of the gifts you made is less than the Inheritance Tax threshold then the value of the gifts is added to your estate and they use the first part of the available nil rate band.

However, if you die within 7 years of making the gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value either by the person receiving the gift or the personal representatives of the estate. Relief by way of a reduction in the amount of tax will be given if you die between 3 and 7 year after making the gift.

Record Keeping

It will help your Executors to deal with your financial affairs when you die if you keep a record of any gifts you make and note on that record of which exemption you have used.

It is also a good idea to keep a record of your after tax income if you make regular gifts out of income as part of your normal expenditure. This will show that the gifts are regular and that you have enough income to cover them and your usual day to day expenditure without having to draw on your capital.

Lifetime giving is an important and often overlooked method of passing wealth tax free to your family and helping to reduce Inheritance Tax payable on death.

If you would like more information about Inheritance Tax exemptions or for help with any other private client law matter please contact Jane Fagan or your usual Brabners contact:

Jane Fagan

Associate, Private Client
Tel: 0151 600 3448
Email Jane

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