Lifetime Gifting

Lifetime gifting is an essential element of estate planning.

It offers a practical way to manage wealth and provide for loved ones whilst also potentially reducing your inheritance tax (IHT) liability. If you are considering gifting in your lifetime, there are some other factors you should also consider.

What is lifetime gifting?

Lifetime gifting involves transferring assets to a beneficiary during your lifetime rather than by way of your Will. This includes (but is not limited to) gifts of money, household goods, property and stocks and shares.

What are the benefits of lifetime gifting?

1. Reducing Inheritance Tax

One of the primary advantages of lifetime gifting is the potential to reduce IHT. Gifts made during your lifetime can reduce the value of your estate, subsequently reducing the IHT liability.

2. Reducing The Size of Your Estate

By making lifetime gifts, you can reduce the overall size of your estate, potentially reducing it below the IHT threshold (currently £325,000) or minimising the amount subject to IHT.

3. Annual Exemption

Each tax year, you can give away up to £3,000 without it being added to the value of your estate. Any unused annual exemption can be carried over to the next tax year, allowing for a total exemption of £6,000.

4. Small Gift Allowance

Gifts of up to £250 per person per tax year are exempt from IHT (provided you have not used another allowance on the same person).

5. Wedding Or Civil Partnership Gift

Gifts made for a wedding or civil partnership are exempt from IHT in varying amounts: up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.

6. Regular Expenditure Out of Income

Gifts that form part of your normal expenditure out of income are exempt from IHT provided they do not affect your standard of living. This requires careful documentation to prove the gifts are regular and made from surplus income.

What should you consider before making lifetime gifts?

1. 7 Year Rule

Gifts are potentially exempt transfers (PETs). If you survive for seven years after making the gift, it falls outside of your estate for IHT purposes. If you die within seven years, the gift is included in the estate and may be subject to IHT on a tapering scale.

2. Gifts with Reservation of Benefit

If you continue to benefit from a gifted asset (for example, you gift a property to someone but continue to live there rent free), the gift remains part of your estate for IHT purposes.

3. Capital Gains Tax

Transferring assets such as property or shares may incur capital gains tax (CGT) on any increase in value since the asset was acquired. It is important to consider the potential CGT implications alongside IHT savings.

4. Financial Security

You must ensure that your financial security is not compromised by any gifts you make.  It is important to retain sufficient resources for yourself for future needs, such as potential care costs.

5. Deliberate Deprivation of Assets

You need to be careful when making gifts so that it does not appear as though you are reducing your assets deliberately to avoid paying for your future care. The local authority will consider the timing, intention, and circumstances of the gift. If they suspect deliberate deprivation, they may include the value of the gifted asset in your financial assessment, seek to recover costs, and ultimately, it could affect your eligibility for means-tested benefits or financial support.

6. Keeping Records and Obtaining Professional Advice

It is important that you keep a record of any gifts you make and obtain legal and financial advice beforehand. The professionals can advise you, help you manage your wealth and plan for your future.

Contact our New Enquiries Team to book an appointment with an expert!