Christmas will quickly be upon us and whilst many of us will be thinking of buying and wrapping gifts, many people will also be thinking of giving cash, too.
Giving away cash is the easiest way to avoid paying inheritance tax (IHT) when you die. However, the time at which you make a gift, the size of the gift and the size of your estate are all factors in determining how much IHT will be payable on your death.
Possible cash gifts that are unlikely to affect your inheritance position could be:
- £250 to as many individuals as you want: family, friends or the cat sitter!
- £3,000 to someone who has not already benefitted from the £250 gift above.
If you didn’t make a gift of £3,000 in the last tax year, you could carry it forward – use it this year and give up to £6,000.
In addition, if your income is such that you have leftover funds to spare whilst maintaining your usual standard of living, gifts made from your excess income may also be exempt from IHT.
The start of the New Year is often a time to create new habits and you may wish to create a pattern of giving away the excess income. You don’t need to survive for any minimum period for these gifts to fall out of your estate for IHT purposes.
If you are contemplating making a higher value gift in the spirit of the festive season, outright gifts of cash in excess of the annual exemptions above will be potentially exempt transfers (also known as PETs) and you will need to survive a full seven years from making the gift for its value to completely fall out of your estate.