Year End planning : Inheritance Tax

There are a number of inheritance tax exemptions and reliefs available to taxpayers, of which the main ones are set out below:

1. The annual exemption

   This amounts to £3,000 per year and can cover substantial transfers made over a number of years. The exemption can only be carried forward for one tax year and so care should be taken to ensure that an unused exemption is not wasted. The current year’s annual exemption is treated as used up before an exemption brought forward from the previous year.

2. Small gifts exemption

   Gifts of up to £250 to any one person in a tax year are exempt

3. Gifts in consideration of marriage/civil partnership

   Gifts of up to £5,000 by a parent, £2,500 by a grandparent, £2,500 by one party to the marriage or civil partnership to the other and of £1,000 by anyone else are exempt. These exemptions apply per marriage/civil partnership and should be borne in mind if a marriage or civil partnership is expected in the year.

4. Normal expenditure out of income

   This exemption applies if the gift forms part of the donor’s normal expenditure, is made out of the donor’s income and leaves him with sufficient income to maintain his normal standard of living.

5. Long term UK residents

   Non-UK domiciled long term residents of the UK should review the number of years they have been resident in the UK to see whether they are likely to acquire a UK “deemed domicile”. This occurs after UK residence for 17 out of the previous 20 years. Deemed domicile applies only to inheritance tax and results in a person’s worldwide assets being subject to UK inheritance tax.

Contact us for further details:

Phone: 020 7354 3914