Lifetime gifting is one of the most effective ways to reduce your inheritance tax (IHT) liability while supporting loved ones during your lifetime. Whether you're helping children with a house deposit or supporting a vulnerable relative, understanding the rules around gifting is key to making informed decisions.
What is Lifetime Gifting?
Lifetime gifting refers to transferring money, assets, or property to others while you're still alive. These gifts can reduce the value of your estate, potentially lowering the IHT bill when you pass away.
Tax-Free Allowances
Each tax year, you can gift up to £3,000 without it being added to the value of your estate. This is known as your annual exemption. You can also carry forward unused allowance from the previous year, allowing up to £6,000 in some cases.
The Seven-Year Rule
Gifts above the annual exemption may still be exempt from IHT if you live for seven years after making them. If you pass away within seven years, the gift may be subject to IHT on a sliding scale known as 'taper relief'.
Types of Gifts
Here are some effective ways to reduce inheritance tax liability on property:
- Regular gifts from income (e.g. monthly transfers to children)
- Wedding or civil partnership gifts (£5,000 to a child, £2,500 to a grandchild)
- Small gifts up to £250 per person per year
- Gifts to charities or political parties (usually exempt)
Gifting Strategies for Estate Planning
Strategic gifting can help reduce your estate's value and ensure your wealth benefits loved ones. Consider gifting early, keeping records, and using trusts for more complex arrangements. Trusts can help manage gifts for children or vulnerable beneficiaries while retaining control.
Real-World Example
Margaret, 68, gifted £20,000 to each of her two children to help with house deposits. She used her annual exemption and planned the gifts over two tax years. She also set up a discretionary trust for her grandson with learning difficulties, ensuring long-term support without affecting his benefits.
How Rite Wealth Can Help
At Rite Wealth, we help clients navigate the complexities of lifetime gifting and estate planning. Our advisers can assess your financial position, recommend tax-efficient strategies, and ensure your gifts align with your long-term goals.
Ready to Start Gifting Strategically?
If you're considering lifetime gifts or want to reduce your inheritance tax bill, get in touch with Rite Wealth today. We offer personalised advice and estate planning solutions tailored to your needs.
This article is for information only. It is not financial advice or a personal recommendation, and it does not take account of your circumstances. Any recommendation would follow a full assessment.
Tax treatment depends on individual circumstances and may change in future. The Financial Conduct Authority does not regulate will writing or some forms of estate planning and tax advice.