HMRC data reveals a significant rise in Inheritance Tax receipts, prompting warnings for Britons who have given substantial gifts during their lifetime.
Britons are being urged to prepare for potential tax bills if they have ever made substantial monetary gifts to family members. This comes after HMRC revealed last month that Inheritance Tax ( IHT ) receipts from April 2024 to December 2024 are expected to reach an astonishing £6.3 billion, a rise of £0.6 billion compared to the same period the previous year.
Contrary to popular belief, IHT isn't solely levied on assets left behind after death; it can also apply to 'gifts' given during your lifetime. A wide range of assets can be considered a 'gift' for IHT purposes, including monetary gifts, household and personal items, property, land or buildings, stocks and shares listed on the London Stock Exchange (LSE), and unlisted shares held for less than two years prior to death. GOV.UK clarified that even losing money when selling an asset for less than its worth can be classified as a gift. For example, selling your house to your child for less than its market value would see the difference in value counted as a gift. Anything left in your will is not considered a gift but forms part of your estate. Your estate encompasses all your money, property, and possessions left at your death. The value of your estate will determine whether Inheritance Tax needs to be paid. The current IHT rate stands at 40 per cent on estates exceeding the £325,000 threshold, a figure that has remained unchanged since 2009 and is projected to continue until at least 2030. Financial experts warn that with the static threshold, the rising IHT receipts are almost inevitable.Despite the potential tax implications, there are several exemptions and allowances within the IHT legislation. Individuals are allowed to make annual gifts of up to £3,000 to any person, and unlimited gifts to spouses or partners. Furthermore, regular payments out of income can be made to help keep the value of your estate below the £325,000 tax-free allowance. Smaller gifts of up to £250 per person per tax year are also exempt from IHT, provided another exemption isn't already applied to the recipient. Birthday and Christmas gifts from one's usual earnings are not taxed. Additionally, a tax-free donation can be made annually for weddings or the formation of a civil partnership. It's important to note that gifts made within seven years of death can be subject to IHT. Gifts given in the three years preceding death are taxed at 40 per cent, while those given three to seven years before death are taxed on a sliding scale known as 'taper relief'. However, taper relief only applies if the total value of gifts given within seven years prior to death exceeds the £325,000 exemption limit
Inheritance Tax IHT Gifts Taxation Estate Planning HMRC
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