Not all gifts at Christmas need to be wrapped up
There is a misconception that you cannot give more than £3,000 in any tax year, but this is not the case. The fact is you can give any amount without triggering any kind of tax charge. Where a tax implication does arise is if the person giving the gift dies within the seven-year period from the date of the transaction.
It is however vital to understand that if death does occur within this 7-year period, no tax charge will be incurred by the children nor will they have to return the gift. All that happens is all or part of the gift will be nominally brought back into the estate for the purpose of calculating any inheritance tax liability. Gifts from income may be deemed as immediately outside an estate if the amount given does not have a detriment impact on the value of the donor’s estate. In other words, gifts from ‘surplus’ income.
For those concerned by the seven-year rule, there are other opportunities available.
Business Relief (BR) is the name given to a tax incentive where the government allow the value of an investment to be deemed outside of an individual’s estate after the investment has been held for just two years (and still held at date of death). This is becoming a very popular method of inheritance tax planning, the main attraction being the investment stays in the investors control, so no gifting takes place and here are the other features:
Speed – Inheritance tax benefits are achieved if BR qualifying assets of investments are held for just 2 years at date of death.
Control – Investor retains control of and access to their investments.
Flexibility – Options for survivor on partner’s death.
Simplicity – No legal structures or medical underwriting. Although this type of opportunity is not new, historically the investment content has leaned towards the higher end of the investment scale and this has never been particularly appealing to investors in retirement. We now however have access to lower risk products which aim to target capital preservation, which is how this sector has now become so popular with investors looking to mitigate against inheritance tax.
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