Inheritance Tax: The Rules
How much can you give away without it counting as part of your estate? Paul Lewis has the answers
The vast majority of us need not worry about Inheritance Tax (IHT). Only one in 20 estates pays it, but people still fear its complex rules: several readers have asked how much a person is able to give away without it counting as part of your estate when you die?
Gifts made in what turns out to be the last seven years of your life are counted as part of your estate – though with a discount if you live at least three years after making them.
So the safest way to give money or valuables away is to live seven years after making the gift!
Free guide to saving Inheritance Tax
Colin emailed about giving money to his children and grandchildren. He thinks he can give away up to £3,000 a year – and £6,000 this year if he gave nothing away last. He’s right, but the £3,000 gift limit is the total gifts given in the tax year. So two children can be given £1,500 each (or £3,000 each if you gave nothing away last year). And the grandchildren? Another rule allows you to give away up to £250 a year to any number of people – as long as they did not get any of the £3,000 big gift limit. So Colin is free to give his grandchildren £250 each (though be warned that contributing to the cost of school trips, clothes, etc would count towards that £250).
Meanwhile, Paul is worried about the support he gives his children at university. He needn’t be, though: Inheritance Tax doesn’t apply to money given for education of a child including any school expenses. The exemption also covers your own older children in full-time education such as university (but does not extend to money given to grandchildren or anyone else).
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Finally, weddings can be celebrated with an IHT-free gift of £5,000 to your own child, £2,500 for a grandchild, and £1,000 for anyone. And regular gifts from income that you do not need are entirely exempt. So if your income in old age is £40,000 a year but you only spend £25,000 on your lifestyle, you can give away the £15,000 balance as a monthly £1,250 allowance – to one person or shared – free of IHT worries.
Free guide to saving Inheritance Tax
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. I cannot answer you personally, but I will reflect them in this column