A lawyer specialising in estate planning has warned people not to fall foul of inheritance tax rules this Christmas, as families are expected to increase gifting to help loved ones adversely affected by the coronavirus pandemic.
Anna Coleman, a solicitor with south east law firm Furley Page, said: “People often contemplate making gifts of cash or other assets at Christmas, and this year in particular we expect to see more people taking advantage of the opportunity to help those adversely affected by COVID-19.
“Before making a gift, it is sensible to discuss matters with an expert to ensure that any gifts made are as tax efficient as possible and to protect beneficiaries from unplanned tax bills in the future.”
When it comes to calculating the value of an estate for inheritance tax purposes, the Executors must include the value of all gifts made during the seven year period leading up to the death of the testator.
However, there are exceptions to the ‘seven year rule’, such as gifts to spouses which are not included in the calculation and can be unlimited in value. Furthermore, each individual is allowed to give away up to £3,000 each tax year (the “annual exemption”) without that amount being included in the valuation of their estate.
Individuals are also able to make gifts of up to £250 to any number of individuals, as long as no other exemption has already been used on that donee. Gifts out of any surplus income can also be made, but individuals must be able to maintain their usual standard of living despite making these gifts.
Charities are exempt beneficiaries for inheritance tax purposes, and financial support for them will not result in an inheritance tax liability.
Anna concluded: “It is important to keep accurate records of any gifts, which will make it simpler for the executor of the estate to calculate what tax is payable.
“The rules surrounding lifetime gifts and inheritance tax planning are complex and it is sensible to seek specialist advice on inheritance tax planning to ensure you don’t fall foul of the rules. A specialist private client lawyer can advise on how to make gifts most effectively, helping to ensure that relatives do not face an unexpected tax bill in the future. “