Or lose them at midnight on 5th April…
But don’t send a cheque. HMRC only count a gift of money as being complete when the person it has been given to has full control over it. The maximum an individual can give as tax-free gifts under these rules is £3,000 each year. So a cheque which hasn’t been cleared by 5th April will come out of next years allowance, and you will have lost the unused allowance from the previous year forever, as it is currently only possible to carry forward the allowance for one year. So if you haven’t made any gifts in the current and previous tax year, could give £6,000 under this exemption which would be immediately outside your estate – a potential saving of £2,400 or £4,800 for a couple. The gift can be shared, it doesn’t have to go to one person.
How to give away (almost) unlimited tax-free gifts.
Property Nil Rate Band – does your Will need changing?
The Property Nil Rate Band allowance is going to be lost to tens of thousands of people because their Wills are no longer correctly structured. That could be an unnecessary tax bill of £140,000 for the sake of revising your Wills.
Another way some people can give Tax Free Gifts.
Back to Inheritance Tax. If your income consistently exceeds your outgoings, you can establish a pattern of regular gifts (“gifts out of normal income”) which will, in time, become exempt from Inheritance Tax and become tax-free gifts. But expect the taxman to ask for proof when you have gone, and to disallow the gifts if they can! The longer the giving has been going on, the better, as you do need to establish that it was intended to be routine and ongoing. Keep good records of income and expenditure.
A vital precaution for everyone over 18.
Everyone over 18 should have both types of Lasting Power of Attorney – one to manage finances when you can’t, the other to ensure your interests are protected when you are seriously ill or in need of a Nursing Home. Most people would prefer their families to be in charge rather than the Court of Protection. Maybe for younger folk you could use the £250 to subsidise the cost? The most dangerous time for many is 18 to 23.
£3,000 Annual Tax Free Gifts Allowance.
This allowance can be carried forward to the next tax year to the extent that it is unused. However, this is limited to one tax year only, so if you had not made such a gift in the previous tax year you could now make a tax free gift of £6,000 without affecting your nil rate band allowance. Once the clock turns midnight on 5th April, a new tax year will start, permitting you to make another £3,000 gift. Therefore provided the above were followed, £9,000 in total could be gifted between now and 5th April 2019 without impacting on your estate’s NRB and making a potential tax saving to IHT of £3,600.
Tax Free Gifts to spouse and then out…
Gifts between married / civil registered couples are exempt, so you can potentially use both allowances even if all the money is in one name. So double up the tax free gifts!
Cut the IHT Rate with a gift to Charity.
Giving over 10% of your estate to Charity, if correctly structured in your Will, will currently drop the rate of IHT on the rest of your estate significantly.
There are other issues which may be relevant too.
Trusts are especially useful when the next generation down is already adequately provided for and it may well be that grandchildren or great grandchildren do need help. They won’t save you any IHT (normally) but they can save it for each subsequent generation for man, man years.
Even if you read this after March, we offer an inexpensive initial IHT Review which will diagnose most problems and make recommendations in less than half an hour of your time.
Taking advice early is much better value than leaving it too later, and maybe even missing the timescale for a Deed of Variation. We have skimmed the surface of the Inheritance Tax planning ideas here, because many of them are only right for some people. So why not take the opportunity to help your beneficiaries even more?
You might also want to look at our series of articles and videos on the various aspects of Legal Planning.