What are lifetime gifts and how do they work?

26 September, 2017

It’s common knowledge that if you gift money, assets or valuables seven years before you die, you are free of inheritance tax.

 

There is no limit to how much you can gift. If you give away more than £3000 in a tax year (the previous year’s unused allowance can also be used) and you don’t survive the gift by seven years, the surplus is added back to the value of your estate at death for the purpose of calculating inheritance tax. There is no penalty – the inheritance tax is no more than it would have been had you kept the value in your estate and actually it will be slightly less due to use of the annual allowance.

 

Where you as the giver continue to benefit from the gift, it will be deemed to be a gift with reservation of benefit, meaning the seven year “clock” does not start. If at a later stage part of the gift is returned to you or spent on your behalf, the part of the gift will be treated as a gift with reservation.

 

Lifetime giving – accelerating inheritance by your heirs for example – has many benefits not least the pleasure of seeing your gift being enjoyed. The only downside is that you make yourself poorer, although for inheritance tax saving that is the whole point!

 

First appeared in the May 2017 edition of the Wealden Times.