How Much Money Can You Gift without Tax?

We answer the question of how much money can you gift without tax and offer our top-level advice for inheritance tax planning.

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Ever-rising property prices are leaving more of us subject to inheritance tax. With the current threshold of £325,000 and the average UK house price at £232,000 (significantly more in the south of England), it clearly doesn’t take much to land your children with an inheritance tax bill to meet within six months of death.

Whilst tax is only payable on wealth over that threshold, at 40% it can still represent a crippling bill when the bulk of that wealth is locked in a property that needs to be sold.

One of the ways inheritance tax can be avoided is by gifting money during your lifetime.

But how does this work, when should you consider it, and how much money can you gift without tax?

How does inheritance tax affect my partner?

When you die, you’re allowed to give your money tax-free to your spouse or civil partner. That’s nice and easy; they can inherit everything you have and won’t have to pay anything, even if you have assets above the threshold of £325,000.

The great thing is that unused tax-free allowance can be passed to your spouse too. Unfortunately, if you’re not married to your partner it becomes rather trickier and inheritance tax may be incurred. So find out where they stand.

Gifting assets to your children

You can give what you like to your children, and anyone else, tax-free as a gift. The important thing to do to ensure it remains tax-free is to survive for more than seven years after making the gift. If you don’t live for seven years, they might find themselves with an inheritance tax bill. This is a ‘potentially exempt transfer’ where the ‘potential’ is subject to you surviving seven years or more.

Whatever happens, if you give gifts to others before you die, be sure to keep a record of who you gave to, when you gave it, what it was, and how much it was worth. This’ll make it much easier for the executors to understand the tax liabilities of your estate.

How much money can you gift without tax?

While you’re alive, you have an annual gift allowance of £3,000. This annual exemption means that anything less than that total will not incur inheritance tax if you die. You can carry this allowance over for one year only, giving a maximum of £6,000 allowance if nothing was given the preceding year.

Additionally, there’s no limit on what you can leave to charity, so even if you give more than £3,000 it will remain exempt from inheritance tax. Such gifts can bring tax relief on income tax too.

Are there any other exemptions?

There are other assets you may hold which are either exempt, or partially exempt, from inheritance tax.

  • This may include your business, subject to the type of business and means of ownership.
  • Farms can be passed on without incurring inheritance tax but check the machinery, as that’s not necessarily included.
  • Woodland property or heritage land can also be exempt or subject to tax relief.

Gift tax rates

It’s not just inheritance tax you have to worry about when you die.

Gifts bequeathed to others can be subject to additional taxes such as income tax or capital gains tax. This is particularly important if shares and investments are among the gifts passed on.

How can I reduce my inheritance tax liability?

This can be a very complicated process and there’s nothing to beat a good understanding of the system. Aside from leaving everything to a spouse, your broad options are to regularly use your £3,000 gift allowance, or to put your assets into some kind of trust for your heirs.

Another good way of covering any inheritance tax bill is through paying into a life insurance policy that will pay out in the event of your death. You’ll need to specify that it’s held in trust and record your wishes in a letter to the trustees.

Our free Guide to Inheritance Tax

For more information about gifts, gift tax rates, and inheritance tax rates and allowances, download our free guide.

You can download the guide instantly and for free by clicking the button below.

Expert Wealth Management provides independent financial advice tailored to your individual needs and circumstances. Receive personalised gift and inheritance tax advice to suit your exact requirements and prepare in the best way for the future.

Download my free guide to gifts and inheritance tax planning

Dominic

About the Author

Dom is a qualified and experienced Chartered Financial Planner (CII) and Chartered Wealth Manager CFP (CISI) and a Registered Life Planner (Kinder Institute) with over 30 years experience. His work primarily focuses on retirement income planning, helping clients to maintain financial dignity and independence in retirement. Read more from Dominic...
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
Just a line to thank you for the meeting today, and for another of year of prudential stewardship of our assets on your part. Graham & Liz

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