If a marriage or civil partnership is in the offing, exempt gifts can be made by a parent (£5,000 each) or grandparent (£2,500 each) either of the couple (£2,500) or any other person (£1,000). These gifts must be made on or before the ceremony takes place.
Other lifetime gifts that do not fall within any other exemption are exempt up to £3,000 per tax year and if any of this amount is unused, it may be carried forward but for one year only.
For lifetime gifts to UK charities, the IHT treatment is favourable. They are exempt from IHT and you may also be able claim relief from income tax or CGT.
Following your death your estate may also benefit from a reduced rate of IHT of 36 per cent, rather than 40 per cent, if 10 per cent or more of the total value of your assets is left to charity under your will.
Seven year gifts
What happens if a claim for the surplus income exemption does not succeed or is not available, or you are making gifts from capital and their value is over the limit of the smaller exemptions?
In these circumstances, if you die seven years after making the gift it drops out of account and no IHT is payable on it. As your executors will need to report any gifts that you have made within the last seven years, and they may have no knowledge of these, it is very helpful to keep a simple chronological gift log.
If you die within seven years of making the gift it will be treated as a potentially exempt transfer (Pet) and brought back into account in your estate.
The value gifted may be within your nil-rate band but, once over that threshold, the IHT payable will depend on the time that has elapsed between the date of the gift and your death (there is a tax benefit if you survive at least three years). Under the current rules the rate will not exceed 40 per cent of the value gifted.
It is not always appreciated that any IHT due on the gift is payable by the recipient and is due by the end of the sixth month after your death. Interest is then due at a current rate of 7.75 per cent until the tax is paid. If the IHT is not paid by the recipient, the executors become liable.
It may be prudent for anyone receiving a gift in circumstances in which IHT is likely to become due to consider keeping 40 per cent of the value in a form that is readily accessible in case tax needs to be paid or to take an indemnity from the recipient to avoid liability falling on your estate.
