Dave took me to task over my answer to a reader question about gifts that fall outside Inheritance Tax. He says it was “incomplete because it does not mention that different limits apply to gifts made from income”.
He is right. You can make regular gifts from your income and they’ll not form part of your estate for Inheritance Tax (IHT). The gifts must be part of your normal expenditure and can be of any amount, but they must not reduce your normal standard of living. So if you have pensions that are adequate to maintain the life you want to lead plus another source of income, as Dave does, you can transfer that income to someone else, a daughter or a son perhaps. It could be dividends, rent or, as in Dave’s case, a payment from solar panels. That regular payment from your income will not count when IHT is worked out after your death. Remember that every gift is ignored if it’s made at least seven years before you die. And 95% of estates do not pay IHT, which does not start until you leave more than £325,000 — or up to £500,000 if it includes the family home left to a direct descendant. There is no IHT on estates that pass between spouses or civil partners.