Inheritance giveaway
There are ways to give money without liability for inheritance tax, says Paul Lewis.
I get lots of questions from readers about inheritance tax, even though only one in 17 estates will pay it this tax year. Even by 2029/30, after all the changes made by Rachel Reeves in last year’s Budget, the figure will be fewer than one in ten.
Mike wonders about the extra £175,000 threshold for the family home. His home is worth £320,000 and he says he’s leaving everything to his wife, so when she dies their children will get double that threshold, which will be £350,000. So the house will be free of inheritance tax. But Mike asks: “My wife may not want to live in a four-bed house, so if she sells it will they still be able to use that allowance?”
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The simple answer is yes. If someone downsizes, then the value of the original family home they have sold can still be exempt up to £175,000, and double that if they are a widow, as your wife would be. It’s called “downsizing addition” and the personal representative dealing with your wife’s estate will have to ask for it. To find out more, search gov.uk for “downsizing addition”.
Glenn asks if money he gives for a grandchild’s school uniforms or trips is exempt from inheritance tax. Glenn, there is a complete exemption for money given by a parent for their own child’s education at school or higher education. That’s only for parents, not grandparents or other relatives.
But anyone can give up to £250 a year each to any number of people without it coming into the inheritance tax arithmetic. The relief is personal, so you and a spouse or partner can give that much each.
Separately, you can also give up to a total of £3,000 a tax year to an individual or shared between several (and can bring forward £3,000 from last tax year if you didn’t use the allowance then). This is also personal, so each one of a couple can use that much. This exemption is separate from and on top of the £250 a year, but the same people can’t benefit.
As I write, I don’t know what will be in the Budget on 26 November, so I’ve assumed no changes. I’ll write about the Budget itself in the new year.
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