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Beginners’ Guides
Beginners’ guide to Inheritance Tax Planning
Gifting it away
The taxman allows you to make a number of small gifts each year without creating an IHT liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or partner uses their allowances.
You can also make larger gifts but these are known as Potentially Exempt Transfers (PETs) and you could have to pay IHT on their value if you die within seven years of making them. See Taper Relief for the amount you could owe.
Any other gifts made during your lifetime which do not qualify as a PET will immediately be chargeable to IHT.
These are called Chargeable Lifetime Transfers (CLT) and an example is a gift into a Discretionary trust.
The taxation rules of CLT’s are quite complicated and you should speak to a tax adviser if you are considering a CLT.
If you make a gift to someone but keep an interest in it, it becomes known as a ‘Gift With Reservation’ and will remain in your estate for IHT purposes when you die. For example, if you gave your son your house, but continued to live in it without paying a market rent, it would be considered a Gift With Reservation. But if you continued to live there and paid him a market rent each month, it would become a Potentially Exempt Transfer and move out of the IHT net provided you survived for seven years. However, your son would be liable to pay income tax on the rent he received.
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