Inheritance tax: it’s time to give some thought to giving

Last year, the Treasury collected more than £5 billion in inheritance tax (IHT), which as a percentage of the total tax receipts, puts IHT at one of the highest levels it has been since the early 1980s. 

Giving some thought to tax planning can help relieve the sting from the taxman.  Providing much-needed help to younger family members now, may have the side effect of mitigating later IHT liabilities.

Rising property prices are bringing middle-class families into the IHT net, particularly here in Kent where the average property price has soared in recent years, to nearly £350,000. If you do not want the Chancellor to be the biggest benefactor from your estate, now is the time to think about some tax planning measures.


In Kent, 24.6% of people mortgage their properties, but 27% of people own their homes outright. This shows us that for a majority of people in Kent, there is a valuable asset to leave behind for loved ones.

As homeownership continues to be a struggle for many, making gifts could be the most straight forward way of helping younger family members on to the property ladder, as well as being one of the simplest forms of IHT planning you could undertake.

Making use of IHT exemptions

You can give up to £3,000 a year and also carry over any unused allowance from the previous tax year. This means a couple could reduce their estate by £12,000 in the first tax year and £6,000 in every subsequent tax year.

You can also give up to £250 a year to any number of people in a tax year, provided another exemption isn’t also being claimed for gifts to the same person.

Outright gifts to reduce capital value

If you have a larger estate and need to reduce it by more substantial amounts, you can make gifts of cash or assets outright in excess of the above allowances. These are known as potentially exempt transfers because, so if you survive for seven years after making the gift, the value falls outside your estate for IHT purposes. If you die within the seven-year period IHT may be due, but it can reduce according to the time elapsed since the gift was made. The earlier you start planning, the more your family will save.

Getting married

The marriage of younger family members is another opportunity to make use of the lifetime IHT gifting reliefs.  Each parent can give up to £5,000 to a party of the marriage. Grandparents can each give £2,500 and anyone else can give £1,000.

Regular gifting from surplus income

It seems an obvious point, but those who need to reduce their estate, should also make sure that they are not unwittingly adding to it.  If you have a substantial pension and your retirement income exceeds your lifestyle needs, increased savings may be adding to your heritable estate. As long as you retain sufficient funds to meet your needs, you may be able to make regular payments from excess income without any IHT consequences. This is a complex relief, but it could be used to help with long-term commitments such as school fees for grandchildren. However, if you do undertake this form of estate planning, you will need clear supporting documentation to prove you had sufficient disposable ‘income’ to give away.

Inheritance tax planning is an important but complex area, and planning involving giving away any assets should not be undertaken without assessing your future financial requirements.  For bespoke advice on reducing exposure to IHT please speak to your usual Wilkins Kennedy contact in Ashford, Canterbury, Maidstone, Orpington or Sandwich.

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