Married couples and civil partners can gift each other assets and there will be no Inheritance Tax (IHT) charge on the lifetime gift as long as the recipient is domiciled in the UK.
However, transfers to others that are not covered by the reliefs listed at the end of this article, are treated as potentially chargeable lifetime gifts or transfers (PETs). The gifts can be included in the estate of the donor if they were made less than 7 years before the date of death.
If the person making the gift gave away more than £325,000 in gifts in the last 7 years of their life, and this includes the gift to you, you may be required to pay any IHT directly attributable to the gift. Otherwise, IHT is paid by the estate.
IHT is payable at the following rates on PETs made between the date of the gift and date of death:
- Less than 3 years – 40%
- 3 to 4 years – 32%
- 4 to 5 years – 24%
- 5 to 6 years – 16%
- 6 to 7 years – 8%
These rates may be reduced if the deceased qualified for a reduced rate of IHT.
Gifts that aren’t charged to IHT include:
Annual exemption
Up to £3,000 of gifts made each year. The £3,000 exemption from the previous year may also be available, if not used in that year.
The following allowances are generally in addition to this.
Wedding gifts
There’s no Inheritance Tax on a wedding or civil partnership gift worth up to:
- £5,000 given to a child
- £2,500 given to a grandchild or great-grandchild
- £1,000 given to anyone else
The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.
Gifts up to £250
There’s no Inheritance Tax on individual gifts worth up to £250. You can give as many people as you like up to £250 each in any one tax year.
You can’t give someone another £250 if you’ve given them a gift using a different exemption, e.g. the £3,000 annual exemption.
If you give someone more than £250 in a tax year, the whole amount counts – the first £250 is not exempt.
Regular gifts from the giver’s income
There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. These gifts include:
- Christmas, birthday and anniversary presents
- life insurance policy premiums
- regular payments into a savings account
Payments to help with living costs
There’s no Inheritance Tax on gifts to help with other people’s living costs if they’re made to, for example:
- an ex-husband, ex-wife or former civil partner
- a relative who’s dependent on them because of old age, illness or disability
- a child (including adopted and step-child) under 18 or in full-time education
Charities
There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.
Political parties
There’s no Inheritance Tax on gifts to political parties that have either:
- 2 members elected to the House of Commons
- 1 member elected to the House of Commons and received at least 150,000 votes in a general election.