“However, if the donor dies sooner, the tax will be charged on the gifts at various levels if the Inheritance Tax threshold is reached.”
The gift would be taxed at the following rates:
- If the person dies within three years of giving the gift – 40 percent
- If the person dies within three to four years – 32 percent
- If the person dies within four to five years – 24 percent
- If the person dies within five to six years – 16 percent
- If the person dies within six to seven years – 8 percent
- If the person dies after more than seven years – 0 percent
Small gifts can also be exempt from IHT, according to Ms Lonergan.
She said: “Any small number of gifts can be given to any number of people in a single year provided the individual gifts do not exceed £250.”
Normal expenditure out of income gifts
A gift is regarded as part of the person’s ‘normal’ expenditure if its amount and type are consistent with the pattern they usually gift. ‘Normal’ is regarded as broadly equivalent to typical or habitual.
Ms Kirby said: “Habitual gifts, paid from any excess income, without adversely affecting the standard of living of the individual making the gift, are also exempt from inheritance tax.
“This method of gifting needs to be carefully recorded as evidence will need to be provided to HMRC to prove the gifts were genuinely made out of excess income, in the event of the beneficiary dying within seven years.”
Gifting to charities
Gifts to charities are exempt from IHT provided they are made outright, according to Ms Lonergan.
But it doesn’t stop there. She continued: “When someone has passed away and a gift of 10 percent or more of a taxable estate has been made [to a charity], the rate of IHT [to paid on the rest of the estate] is reduced from 40 percent to 36 percent.”
According to a report, gifts left in Wills currently raise £3.4billion annually, which accounts for 16 percent of all fundraised income for UK charities, and this number is expected to double again by 2050.
Gifts in consideration of marriage or civil partnership
Gifts in consideration of marriage and civil partnership are also exempt from IHT up to a certain value and depending on the recipient.
Ms Longeran said: “A child could receive up to £5,000, a grandchild or great-grandchild can receive up to £2.500, and 1,000 for any other person. Gifts can be made outright or into trust.”
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