Maximising Lifetime Gifts for Inheritance Tax Efficiency

Making lifetime gifts can be a strategic way to manage your Estate and potentially reduce the burden of inheritance tax payable by your Estate. Making these gifts during your lifetime plays a crucial role in shaping how your assets are distributed and taxed upon your passing. Making lifetime gifts can often be seen as a generous act, however, it also can have significant impact as to how much inheritance tax your Estate and ultimately your beneficiaries, must pay. 

An important aspect to consider when making a lifetime gift is the concept of the ‘seven- year rule’. Generally, gifts made more than seven years before your passing will usually fall outside of your Estate and therefore, be exempt from inheritance tax. However, if you pass away within seven years of making the gift, this may result in the gift attracting inheritance tax, with a sliding scale of tax relief applied based upon how many years have passed since the gift was ultimately made. These lifetime gifts are known as potentially exempt transfers, as one day, the gift may become exempt from inheritance tax. Understanding the ‘seven-year rule’ and the potentially exempt transfers, is crucial when Estate planning, to ensure that the level of inheritance tax payable by your beneficiaries is minimised as much as possible. 

Furthermore, certain gifts are considered exempt from inheritance tax, regardless of when the gift was made. These gifts include, for example, gifts to a spouse or civil partner, regular gifts out of income, gifts to charities and small gifts up to a certain value. When Estate planning, you can take advantage of these exemptions and strategically gift part(s) of your Estate, throughout your lifetime, in a tax efficient way, ensuring that more of your wealth is passed to your loved ones on your death.

It is clear that making lifetime gifts can be a powerful tool to utilise when Estate planning, allowing you to support loved ones throughout your lifetime and also, potentially reduce the inheritance tax burden placed upon them upon your passing. Being aware of the various options available, when making any lifetime gift, is crucial to consider when Estate planning. 

For more information...

Contact our Private Client team who can provide valuable guidance, tailored to your specific circumstances. Our Private Client team can help you navigate the complexities of inheritance tax, thus ensuring that the value of your Estate, passed to your loved ones, is maximised as much as possible.