Inheritance Tax: parents and grandparents unsure of rules

Parents and grandparents are unclear about Inheritance Tax rules, according to new research from over 55s retirement specialist Key Retirement.

A survey it commissioned reveals 47% of parents and grandparents do not understand the tax rules around gifting and almost three quarters (73%) admit they find the rules complicated. At the same time, 38% are not aware their estate might be liable for Inheritance Tax on gifts to family members.

So what are the rules governing Inheritance Tax, which have recently changed following the introduction of the Residence Nil Rate Band?

 

Gifts and Inheritance Tax

 

There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.

There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently.

You can give away £3,000 worth of gifts each tax year – your annual exemption – and any unused annual exemption can be carried forward to the next year, but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties
  • small gifts (up to £250 per person) assuming you haven’t used any of the other exemptions above on the same person

Currently, the Inheritance Tax threshold is £325,000 per spouse, plus the new Residence Nil Rate Band (RNRB).

Inheritance Tax is just one area of taxation which Regulatory Accounting can advise you on. For assistance, please get in touch with the team.