Inheritance Tax Exemptions

Annual Exemption

We can all give up to £3,000 each year to whoever we wish and the gift is immediately outside of the estate for Inheritance Tax purposes.  You don’t have to survive 7 years from the date of making the gift which is normally the case for larger gifts.

It’s also worth remembering that if you didn’t use the £3,000 exemption last year, you can leave up to £6,000 this year, i.e., the allowance can be carried forward one year. 

Small Gift Exemption

In addition to the Annual Exemption you can make small gifts of £250 to as many people as you wish. You could in theory hand out £250 to everyone you met in the street. You would most probably get killed in the stampede, but you would at least have the peace of mind of knowing that all the money you’d managed to give away up until that time, was free of Inheritance Tax!

Gifts Made out of Normal Expenditure

There’s an exemption which comes under the heading of ‘normal expenditure’.  This can prove quite a difficult one, because what may be normal to one individual, may not be normal to another.

Of course, you could write to HMRC advising them of your plans and asking them to confirm whether the payments you’re planning to making would be deemed as a gift out of normal expenditure.

The answer is likely to be something along the lines of “it might be under current legislation, but we’ll let you know in due course.” 


The bottom line is that you’ll never know whether that part of your Inheritance Tax planning actually worked.  Your beneficiaries will, but you won’t.


Gifts Made in Contemplation of Marriage

Gifts made in contemplation of marriage fall immediately outside of your estate for Inheritance Tax purposes.  Parents each can gift up to £5,000 and grandparents up to £2,500 for this purpose.

Gifts made to Charities or Political Parties

Gifts to charities are exempt from Inheritance Tax, so if you have no-one to whom you wish to leave your estate, then at the very least it makes sense to put in place a plan that allows your estate to be left to charity. If you make no plans, your estate goes to the Crown (assuming there are no further beneficiaries).  Of course, when we say the Crown, we mean HMRC. 


Similarly, you can leave as much money as you wish to any political party. 

In the past, there were limits on the amount of money you could leave to a political party without paying Inheritance Tax, but that has changed and the politicians are now happy for you to give them as much as you like. Aren’t the Politicians wonderful people!


Gifts Between Married Couples or Legal Civil Partners

Finally, transfers between a legally married husband and wife or civil partners are completely free of Inheritance Tax. However, whilst this is the case for gifts between spouse of UK Domicile, it is important to note that for gifts from a UK domiciled spouse to their NON UK domiciled spouse only the first £55,000 is exempt from theIHT net.


read more