IHT Free Gifts



I understand that the ability to make gifts free from inheritance tax could be about to change. Is this correct?




In January 2018 Chancellor Philip Hammond wrote to The Office for Tax Simplification requesting a review into the inheritance tax regime including how current gift rules interact with the wider inheritance tax system and whether the current framework causes any distortions to taxpayer’s decisions. It is speculated that the Chancellor could announce changes in the Autumn 2018 Budget. In expectation that any changes made will be designed to increase tax collected it may be prudent to take advantage of the current rules whilst they are available.


The UK currently has some generous allowances which enable individuals to make gifts completely free from inheritance tax. Small amounts can be gifted tax-free including some wedding gifts; gifts of up to £3,000 each year; gifts of up to £250 per recipient; regular gifts that form part of your normal expenditure out of income.


However, the most generous relief is the Potentially Exempt Transfer regime whereby unlimited gifts – referred to as PETs – will be free from inheritance tax provided that you survive for seven years after making the gift. If you die within seven years of making the gift the value of the seven-year running total of PETS will be added to your Estate. There is an element of taper relief depending on the number of years you survive after the date of the gift. If the total value of your Estate including the PETs exceeds the tax-free Nil Rate Band of £325,000 tax will be due. If tax becomes due on a PET the recipient of the gift should pay the tax.


The generous PET rules do not apply to all gifts, for example gifts into a trust, or if you gift something but can continue to benefit.


For gifts of anything other than cash you should be alert to other taxes which may be levied such as capital gains tax or stamp duty land tax.


The advice above  is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.


Get in touch with Lauretta McGeown via email l.mcgeown@pkffpm.com