With hundreds of reliefs, allowances, and exemptions available, the UK’s inheritance tax regime is among the most complex in the world.
To support you, we’ve put together this quick guide to help you work out how much tax is due when a loved one has gifted part of their estate.
For more information and advice, don’t hesitate to get in touch with our experienced estate planning and inheritance tax team.
- Identify gifts that are not exempt
Starting with the oldest first, list all of the gifts the deceased has made in the last seven years.
Gifts include anything from money, jewellery and furniture to land, property and stocks and shares. A gift may also include any money you lose when you sell something for less than it’s worth. For example, a father may gift the family home to a child for less than the market value.
Remember – you can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate – known as the ‘annual exemption’. Also consider the small gift allowance, exempt gifts for weddings or civil partnerships, and “regular payments”.
- Work out the total value of gifts
In most cases, the value of the gift at the time it was given should be used.
Remember – there’s no inheritance tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime.
- Does taper relief apply?
Gifts given less than seven years before you die may be taxed depending on who you give the gift to and their relationship to you, the value of the gift, and when the gift was given.
If gifts were given with reservation of benefit, you will need to work out when that benefit ended.
More on taper relief can be found here.
- Work out if inheritance tax is due on gifts
Inheritance Tax is charged at 40 per cent on the value of your estate that exceeds the inheritance tax threshold – currently £325,000.
Business, farm or National Heritage property relief may also apply.
- Overseas assets?
If an individual was domiciled abroad or owned a foreign property when they died, double taxation agreements may help prevent an individual from being taxed in two countries.
- Need to pay inheritance tax? Tell HM Revenue & Customs
If there is inheritance tax to pay, you must tell HM Revenue & Customs (HMRC) and pay the tax by the end of the sixth month after the person died.
- Get advice today
For help and advice with related matters, please get in touch with our estate planning team today.