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Gifts and Inheritance Tax

Is it a good idea to give money to avoid inheritance tax? Probably not. Are there better ways to do it if you wish to avoid inheritance tax? Almost certainly - so get in touch to receive inheritance tax advice specific to your situation.

Gifts and Inheritance Tax


If you give away money and other assets with the view of saving inheritance tax you need to be aware of the rules - otherwise it may all be in vain. When you pass away, your estate is counted as including anything that you gave away in the last 7 years of your life, but with some elements omitted:-

Each member of a couple has their own limits, so together you could be giving away £6,000 each year and it would avoid IHT. If you do not fully use the £3,000 limit in a given year it can be rolled forward, but only to the next year and no further. There is nothing to stop you giving more than these limits - it is just that if you die within 7 years the gift will count for tax purposes. However, for very large gifts there is a tapering of the tax payable after year-3 up to year-7. If the gifts are caught by this 7-year rule, even if they are not large enough to generate a tax bill in their own right, they would use up some of the available tax free allowance (the Nil Rate Band) and thereby reduce the amount of unused NRB that could be transferred to your widow(er).

By the way, these limits have NOTHING to do with avoiding paying Long Term Care Fees - that is, there is no limit below which the authorities have to consider that gifts are not deliberate Deprivation of Assets.

When making a gift it has to be genuine e.g. if you give your house to your children but continue to live in it rent-free then tax issues such as Pre-Owned Asset Tax (POAT) and Gift with Reservation of Benefit (GROB) will apply. In that case you may still be caught for IHT and could be creating an extra bill for Capital Gains Tax for the family - a ‘lose-lose’ situation.