Despite the heading this is not an endorsement of a rather large supermarket chain. It is simply a suggestion to maximise your inheritance tax allowances.
There is no doubt that since inheritance tax was introduced in 1984 successive Governments have been very mean with the limits and allowances. The current nil rate band is £325,000 and that is frozen until 2015. The other exemptions have been in place since 1984 and have not moved. Thus in real terms the value has diminished beyond belief. However, they do exist, a lot of people have an idea as to what they are but are not certain, they should be used and the sooner the better because the more of these exemptions that you use each year the less tax you will pay.
There is an annual exemption of £3,000 per person per fiscal year, that is April 6th to April 5th. This, or part of it, can be carried forward for one year only if it is unused. So for husband and wife if they have not used this in the last tax year can each make a gift of £6,000 and can then go on making gifts of £3,000 a year. Whilst it is not a lot, it soon accumulates. After ten years it is £132,000 and with inheritance tax at 40% that’s a saving of £52,800. Furthermore, there is nothing for Mr Osborne to get upset about.
You may also make small gifts to the value of £250 to as many individuals as you in like in any one tax year. However, these must not be a gift to someone who benefits from the annual exemption. Again, these gifts apply separately to husbands and wives, and indeed to civil partners.
There are also some one off gifts that can be made. Wedding or civil partnership gifts can be made by each parent of either party up to the value of £5,000. Grandparents and great grandparents can each give £2,500, whilst anyone else can give gifts or cash to the value of £1,000.
These are not huge amounts but if full advantage is taken then over a period of years significant tax savings can be made.
It is also possible to make gifts out of taxed income and this is completely exempt provided that it was made as part of the normal typical expenditure, that taking one year with another it was made out of income and that after allowing for all transfers the donor was left with sufficient income to maintain his or her usual standard of living.
In addition certain dispositions for the maintenance of members of the family are not deemed transfers of value under inheritance tax legislation and are therefore tax free.
Also there are the gifts to charity. It was a pretty close run thing with this year’s Budget but Mr Osborne has retreated from imposing a cap at £50,000. It is noticeable, unless I missed something which is quite possible, he did not suggest imposing a similar cap on the tax free gifts to political parties. I wonder why.
A further benefit of course with charitable gifts, as my colleague Tom McInerney outlined in last month’s article
, is if a person chooses to leave at least 10% of their estate to charity they will now be entitled to a lower rate of inheritance tax (36%) than those who do not (40%).
None of these are issues where The Chancellor should get excited or upset, they have been in existence since the inheritance tax regime commenced. The sad and perhaps disappointing thing is that the values have not increased since that time.
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