How Gifting Money can Help to Cut Inheritance Tax

With many people looking to give their loved ones as much as they can after they die, more are looking into the best way to minimise the inheritance tax paid. While you can gift up to £3,000 a year, you can actually increase the amount by gifting as part of a couple.

Couples can give away their money before they die without facing inheritance tax if they gift it in certain ways and at opportune times. This enables you to reduce your estate, still ensuring that your loved ones are taken care of throughout your life and after.

When to spend your money

Through carefully gifting some of your money to your loved ones each year, you may be able to save your relatives a lot of money in tax:

  • Give away money each year: Each year, you can gift £3,000, which can be given to one person or split amongst a few. While this is fairly common practice, it is important to know that if you do not use your allowance one year, it can carry forward into the next. However, you shoudn’t try to attempt to roll over multiple years to give away a bigger sum, as this is generally not accepted.
  • Unlimited small gifts: It is important to remember that you can make unlimited small gifts of up to £250 each in any tax year, as long as they are to different people. If you go over this sum, it can count towards the £3,000 limit. It is a good idea to use this for Christmas and birthday presents. If you use this for your grandchild’s presents, it is an easy way to give them money and subtracting from your estate’s total.
  • Wedding gifts: Parents can also give their children a gift when they are getting married. You can each give up to £5,000 to your children any time before the wedding day. This cannot be used after they are married. If your grandchildren get married, you can gift them up to £2,500. For friends and other relatives, you can gift up to £1,000. As well as this, you can pay for anything in the wedding, such as wine and catering, but if you give money for the honeymoon, you must do this before the day. Keep a record of all the gifts you have given with your will.
  • Contributing to living costs: If you are supporting an older person, a child under 18 or in full-time education or an ex-spouse, you do not have to worry about income tax. As it is helping with someone else’s living costs, it will fall under the special exemption. This gift will be tax-free.
  • Charitable donations: Helping charitable causes can also help to bring down the value of your estate. As they are free from tax, you can donate at least one-tenth of your net wealth. This may mean that the government may cut your inheritance tax rate from 40 per cent to 36 per cent.

What are the restrictions on this?

If the total value of your property, savings and other assets exceeds £325,000, or £650,000 if you’re a married couple, what you leave as an inheritance will be taxed. HM Revenue & Customs will take 40 per cent of your estate when you die.

If you are below this, there is no need to worry. You may even be able to use an extra £100,000 allowance for your main property to remain below this number.

While this may help to cut down your Inheritance Tax bill, it is always best to check with a financial adviser before you act. While these rules are tricky to apply, they can help to save you a great deal of money in the long run.

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