Exemptions

Potentially Exempt Transfers

If you make a gift (of any value) to another person it will be exempt from tax if you survive for a period of seven years. If you die within three years of the gift inheritance tax may be payable at the full rate but if you die after the three years the tax payable is reduced.

Annual Gifts

Gifts of £3,000 in a tax year are exempt. In the event that the £3,000 or part of it is unused, it can be carried forward for one year only.
If you are married or in a registered civil partnership you have £6,000 to give away each year, tax free.

£250 Small Gifts

A gift of up to £250 to any individual in a tax year is exempt. It is important to note that this exemption cannot be used in conjunction with the £3,000 exemption above. Consider using this exemption for birthday/Christmas gifts.

Gifts in consideration of marriage or civil partnership

Each parent can give outright gifts in consideration of marriage or of the registration of a civil partnership of up to £5,000 to the parties to the marriage or civil partnership, tax free. Grandparents and great grandparents can similarly make gifts of up to £2,500. Other persons can make gifts of up to £1,000. The gift must be to a party of the marriage/civil partnership so if the event does not take place there is no exemption.

Normal expenditure out of income

This is a very useful exemption and one that is probably not used as much as it should be. For this exemption to apply the gift must be part of your normal expenditure, be made out of income (taking one year with another) and leave you with sufficient net income to maintain your usual standard of living, that is, without resorting to capital. It is important that a pattern of gifts is established. If you are making regular gifts out of income you could do worse than print off page 6 of the IHT 403 form and use that for your record keeping purposes – you will find this at www.hmrc.gov.uk/inheritancetax/iht403.pdf