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A Valuable Inheritance Tax Relief

You may not need to wait seven years ...

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POSTED BY HELEN BEAUMONT ON 06/03/2019 @ 8:00AM

There are some valuable Inheritance Tax reliefs available that may be useful if you want to make a gift without waiting for the 7-year exemption period ...

Usually, gifts would be subject to Inheritance Tax, but there are sometimes relief's available!

Usually, gifts would be subject to Inheritance Tax, but there are sometimes relief's available!

copyright: grandeduc / 123rf

One generous inheritance tax (IHT) relief is the 'normal expenditure out of income' one. It really is only limited by your personal circumstances and the amount of surplus income you have to give away.

As long as these conditions are broadly followed then you can benefit from the exception:

  • The gift was part of your normal expenditure

  • What you have left allows you to continue your usual standard of living

This all seems pretty straightforward.

In practice, everyone's circumstances vary and this means it is often difficult to determine if the exemption applies to you. HMRC are very tight in how this is implemented in line with its own interpretation of legislation and case law. But if the conditions are satisfied, there's no 7-year wait.

If you make a gift to another person (for example, to one of your children), it becomes a Potentially Exempt Transfer (PET). However, it only becomes properly exempt when the donor survives for at least 7 years. Conversely, if the exemption does apply, then there is an immediate reduction in the donor's estate value. HMRC will seek to establish whether the exemption applied if the donor dies within the 7-year time limit, especially if they think that there is Inheritance Tax due from the estate.

As an example, if a grandparent had an income sufficient to support a grandchild by giving them a certain amount each month, and they don't go without themselves, then HMRC would most probably allow it. They like to see a pattern of regular giving over a few years so gifts made on a regular basis are more likely to pass their tests rather than a one-off payment.

Good record keeping is a very important factor in claiming the normal expenditure out of income exemption. HMRC provides a useful form (IHT403) for donors in terms of helping to demonstrate that gifts were made out of their surplus income.

"Would you like to know more?"

If you'd like to find out more about this valuable Inheritance Tax relief then do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...

HELEN BEAUMONT


PS:

If you're looking to work with an expert tax advisor with a wide range of tax experience, do visit www.essendontax.co.uk to find out more about me and discover how I can help!


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.