Almost three quarters of UK adults are unaware that regular gifts from surplus income can be made exempt from Inheritance Tax (IHT), provided certain conditions are met.
What this tells us is that many people may already be giving financial gifts that could qualify, without keeping records that HMRC may need.
The rule, in brief
In order to be exempt from IHT, regular gifts must:
- Come from income, not capital
- Form a regular pattern
- Leave the gift-giver with enough income to maintain their standard of living
These might include payments made to children or grandchildren, supporting education costs, contributions to savings; or help with any household expenses.
Keeping clear records
If this applies to you, you will need to prove to HMRC that the gifts were regular, affordable and made from income – so keeping notes of things like income, expenditure and gifts now will help you avoid any problems later.
However, this isn’t suitable for everyone. Nobody should give away money that they may rely on in later life. But for those with genuine surplus income, it can be an effective way to support your loved ones while managing a potential IHT liability.
If you’re unsure where you stand, or you’re already making regular gifts to your family, get in touch with us.