Over a fifth of retirees use gifts to mitigate inheritance tax

Published: 14/06/2013

A quarter of over-75s and a fifth of over-55s have given a cash ‘loan’ to a loved one as an early inheritance, Aviva’s latest Real Retirement Report has revealed.

In the current financial climate there are many ways a loved one can make use of such a gift; a deposit for a house the most common.

The giving of cash gifts not only allows the giver to enjoy their ‘loan’ in action but it can also help mitigate any Inheritance Tax (IHT) liability.

A person is liable for Inheritance Tax if they have an estate worth in excess of the Nil Rate Band (currently £325,000, or £650,000 for married couples). Anything over this amount is taxed at 40%.

Inheritance Tax Example for a single person

Value of Estate Amount to be taxed IHT bill
£500,000 £175,000 £70,000

Linda Cummins is the Head of Wills and Probate at Goldsmith Williams:

“The mere mention of Inheritance Tax is enough to get the blood boiling of even the most placid person. However with the help of an estate planning professional, there are several ways, including the giving of cash gifts, to minimise your liability.

“The first step is to make a Will. This will help give you with a full understanding of what your estate is worth now and an idea of how much inheritance tax would currently be payable upon death.

“You can give away cash gifts of up to £3000 a year without it impacting on future inheritance tax, plus, you can give £5000 to children and £2500 to grandchildren as wedding/civil partnership gifts in the same tax year. You can make gifts of more than £3,000 which can be treated as tax free under the 7-year rule.

“The 7-year rule allows you to make gifts which are potentially tax free providing that you survive for 7 years after making these gifts . These gifts are called “potentially exempt transfers” (PETs) and can be anything from cash to property. However, you cannot give something away and still benefit from it. For example you can’t give away the family home and then continue to live in it unless you pay the market rent.

“As qualified Wills and Estate Practitioners, our team can help find solutions for individuals, business owners and families who want to safeguard their estate, ensure their loved ones are protected and minimise Inheritance Tax.”

Content correct at time of publication

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