Inheritance Tax - How Much Can I Give Away?

Charlotte Smith, Chartered Legal Executive, Blandy & Blandy

We are often asked by clients how to mitigate Inheritance Tax (IHT) and nursing or residential care costs; people have worked hard during their lifetime and are reluctant for HMRC and the local authorities to take some of that which had been intended for family, friends or charities.

Inheritance Tax

There is no limit to the amount that you can choose to gift in terms of cash or property, but to be an effective gift for Inheritance Tax purposes you must not retain any benefit. The gift remains in your Estate for seven years, using some or all of the Nil Rate Band (currently £325,0000) after which time it drops away.

As an alternative to gifting a sizeable sum in one go, it is worth considering some or all of the lifetime exemptions which if utilised regularly would, over time, help to minimise any capital growth in the value of an Estate. These are summarised as follows:

1. The Annual Exemption – every tax year, £3,000 can be gifted by every individual and the exemption can be carried forward for any tax year it is not used.
2. The Small Gifts Exemption- £250 can be gifted to any one individual each tax year although not to the same recipients of the Annual Exemption.
3. Gifts in consideration of marriage or civil partnership, providing the gift is made before the marriage or partnership takes place. The amount which may be gifted tax free is determined by the relationship of the donor to the couple.
4. Regular gifting out of surplus income. This is a useful allowance where surplus income would otherwise become capital and over time increase the value of the Estate.

 Care Home fees and planning

If you have savings or assets worth more than £23,250 or you own your home, then a move into residential care will require a financial assessment to establish whether you should be self-funding or receive financial assistance from the Local Authority.

Any gifts, disposals or expenditure made prior to a move into Local Authority funded care may be scrutinised to ensure that they were not done deliberately to reduce the monies available for the payment of care and services (the deliberate deprivation rule). There is no specific time frame for the Local Authority to “look back” and so technically all gifts may be subject to scrutiny.

If any gifts are found to fall foul of the deliberate deprivation rule the local authority can consider the value of the gift as part of your estate and will charge accordingly.

Summary

It is recommended that you take advice before making any significant gifts so that you can be sure that you understand the implications for Inheritance Tax purposes and the consequences for eligibility to Local Authority funding for social care. Your Will may also need updating to deal with the consequences of those gifts on any other beneficiaries of your Estate.

Blandy & Blandy is a leading Thames Valley law firm with offices in Wokingham, Henley-on-Thames and Reading. For further information or legal advice, please call 0118 951 6888 or visit www.blandy.co.uk.