If you’re thinking ahead to your later years, making planned lifetime gifts can be a smart way to ease the burden of inheritance tax (IHT) and ensure more of your wealth goes to the people you care about.
Why consider gifting?
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You receive a tax-free allowance (£325,000 Nil-Rate Band) and additional reliefs if you pass a home to children or grandchildren.
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Gifts reduce the size of your taxable estate, potentially lowering the IHT that might fall on those you leave behind.
How gifting works – the key rules
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Annual exemptions – You can gift up to £3,000 each tax year without IHT implications; if unused, it can carry forward one year. Small gifts up to £250 are also exempt per person.
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Potentially Exempt Transfers (PETs) – Gifts above the exemptions become PETs. If you survive for seven years after making the gift, they fall outside your estate for IHT. If you die within seven years the gift may count.
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Gifts with reservation of benefit – If you give an asset away but continue to benefit from it (for example, give a home but keep living in it rent-free), the gift may still count in your estate for IHT.
Practical tips to make it work
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Start early – making smaller gifts over time often works better than large transfers later.
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Keep good records – note the date, value, recipient and nature of any gift.
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Review your will – make sure it reflects your gifting plan and deals with potential tax liabilities.
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Use gifting in combination with other estate planning tools – such as trusts, lifetime giving from income, and charitable donations.
If you’d like help getting your gifting strategy right, we advise you to contact an Estate Planning specialist.
This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.