As the inheritance tax (IHT) net captures increasing numbers of family estates, thanks to long-frozen tax thresholds and rising property prices, more and more people are choosing to pass on wealth while they’re still around.
But while giving money and assets away can help reduce the size of your estate – and, therefore, the resulting inheritance tax bill – the rules are far from straightforward, and getting them wrong could lumber your loved ones with an unexpected tax bill.
We’ve spoken to financial experts and solicitors to find out the most common ways giving gifts can go wrong – and the steps you can take to avoid them.
1. Not making the most of annual gift allowances
You can give away up to £3,000 each tax year without the gift forming part of your estate for inheritance tax purposes. This is the annual gift allowance. You can give this amount to just one person or split it between several.
In addition, unlimited gifts of up to £250 per person can be made each tax year, provided you haven’t already used another IHT allowance for the same recipient.
However, many people fail to make full use of these important allowances.
Joe Cobb, of JMW Solicitors, said: “Many people are unaware that they can give away up to £3,000 each tax year … If the allowance is not used in one tax year, it can generally be carried forward for one year only.
“As a result, individuals often miss valuable opportunities to reduce the value of their estate gradually over time.”
How to avoid it: Review gift plans each tax year and make the most of available allowances wherever possible. As they are per person, married couples can effectively pool their allowances to maximise how much is given away from their estate.
Mr Cobb added: “Small gifts made regularly can produce meaningful inheritance tax savings over the long term.”
