Inheritance Tax (IHT) – Tax Free Gifts 2024-25                  

IHT is payable when a person dies, and their estate exceeds certain limits. It is also potentially payable on gifts made by an individual during their lifetime if the gift was made in the seven-year period prior to their death.

Small lifetime gifts can be exempt. These include:

  • Gifts made out of your disposable income, Christmas or birthday presents for example.
  • Other gifts up to £3,000 per tax year are exempt from IHT. An unused allowance can be carried forward for just one year.
  • 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).
  • Payments to help with another person’s
    living costs, e.g., elderly relative or a child under 18.
  • Gifts to charities and political parties.

Larger lifetime gifts are potentially chargeable to IHT. The potential liabilities are:

  • IHT is payable at 40% on gifts you make within 3 years of your death.
  • Gifts made between 3 to 7 years of your death are tapered. The effective rate of IHT charged reduces from 40% down to 0%.
  • Accordingly, these gifts are not included
    in the valuation of your estate after
    seven years.

Other situations that will affect your estate’s liability to IHT include:

  • Any assets left to your spouse are free of IHT.
  • If the value of your estate is below £325,000, no IHT is payable.
  • If your previously, deceased spouse did not use all of their £325,000 threshold, you can add any surplus to your exempt threshold. Effectively, in these circumstances, your estate could pay no IHT if valued at less than £650,000 (assuming all your deceased spouse’s £325,000 threshold was unused).
  • Since April 2017, an additional main residence nil-rate band applies when a residence is passed on death to a direct descendant. This additional relief will make it easier for families to pass on the family home without a tax charge. The relief amounts to £175,000.

Work though the check list that follows and if any apply to your circumstances call us at DMO to discuss your options.