Inheritance tax planning: using your gifting allowance

Effective inheritance tax (IHT) planning is a popular subject as many try to prepare for the future and protect their wealth as much as possible. Gifts to family and friends using gifting allowances is one way in which you can ensure that you can transfer your wealth with maximum efficiency.

Annual gifting opportunities

Everyone is allowed to give up to £3,000 worth of gifts each year for any reason, and this means that Birthday and Christmas gifts you give from your income are not affected by IHT. These gifts can be to one person only or split between several. It is also possible to use any unused allowance from the year before, but be mindful that you can’t go any further back than one year.

Gifts for special occasions

When a family member or friend gets married, it is common to wish to give a monetary gift, and many of these gifts will not impact your inheritance tax. The amount you can give will depend on the recipient’s relation to you. Each year, you can give:

  • £5,000 to your children
  • £2,500 to your grandchildren
  • £1,000 to anyone else.

Combined with your usual annual allowance, gifts for special events can be a useful way to ensure you are maximising your wealth transfer and mitigating your inheritance tax bill. For example, if your child is getting married, you can give the gift allowance, as well as the annual allowance, meaning a full £8,000 gift can be gifted to one child, without any impact on IHT, in one year. It is also worth remembering that this allowance is per person, so parents could give up to £16,000 to their child for their wedding.

There is also a small gift allowance of up to £250 per person per year. This can be given to any friend or family member, as long as you have not used the other gifting allowances for them.

Other ways to gift money

Setting up regular payments from your income is another gifting route you could take. This is a great option for anyone who would like to give money to support a loved one, such as a relative or friend with their living costs or to help an elderly relative. With this kind of gift, there’s no limit to how much you can give tax free, as long as:

  • you can afford the payments after meeting your usual living costs
  • you pay from your regular monthly income.

It is important that you can show HMRC you are making these regular payments from your income, and not from your savings, so be mindful of this when setting up the payment.

Using your tax-free gifting allowance provides you with a number of opportunities to mitigate your IHT bill, but to ensure you are applying the most effective strategies using best practice, consult a financial adviser who will be able to help you.

The contents of this article should not be considered financial advice. Speak to an expert today to get started.


Thursday 13 July 2023