You may have already made provision in your will for helping out your family financially, whether as bequests, business succession planning or ring-fenced Trust funds.
The problem is that life keeps throwing us and our loved ones' curveballs. Your children may inherit a substantial amount from your estate when you pass away, but that won't help them if their roof has blown off and the insurance is hanging back with the funds they need.
Or their washing machine has given up the ghost and they simply don't have the ready cash to hand to get another.
Equally there are major life events that can be expensive in the short-term:
- The birth of a child
- A wedding
- Graduation
- Furnishing a first home
- A divorce or separation
In many cases, a modest amount of money given now could make a big difference to your loved ones both in the short and long term by avoiding the need for loans, or loading up the credit card/s. That's why your annual gift allowances can really make a difference.
Your gift tax free allowance
As a current taxpayer in England and Wales, you will have an annual allowance that enables you to gift money or valuables to family (or anyone actually), tax free.
According to the Gov website:
“You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your "annual exemption”
You can also give:
- Unlimited small gifts up to a total of £250 per person (But not to anyone who benefits from a gift as whole or part of your £3000 allowance)
- Wedding gifts of up to £5,000 for your children, £2,500 for your grandchildren, or £1,000 for others
Confused about gifts and allowances?
Contact us at Panthera Estate Planning to discuss gifts and other aspects of your estate planning. We're not financial advisors, so we offer balanced, holistic advice that takes into consideration all aspects of your estate planning. Since we don't offer financial services, you get the estate panning advice you need without the sales talk or us trying to sell you anything. How you choose to move forward it entirely up to you.
Use it or lose it
The reason we're talking about gift allowances here (and on our recent Estate Planning newsletter) is this.
If you have NOT used the allowance from last tax year (2022-23) you can combine that unused allowance with this year's allowance (2023-24), making £6,000 in total.
It really is a case of use it or lose it. Once it's the 6th April 2024, you can't go back and claim any unused 2022-23 allowance. It's not often these days that you can carry forward any allowances into the following year, so it's a good opportunity if you can afford it.
How the gift tax allowance works
This tax allowance can reduce Inheritance Tax on your estate by reducing the overall worth of your estate when you die.
BIG RED FLAG:
Only use this allowance if you can afford it. It is not 'free' money, only a IHT tax allowance. You need to have the money to give away in the first place, and be sure that by giving it away you will not affect your own financial stability and estate planning.
You can actually give away as much as you like to anyone during your lifetime, BUT anything over the £3000 a year upper limit may become a tax liability for your estate after you die. How much that liability will be depends on when you gave the gift and how much it was worth.
For the nitty gritty on larger gifts, see our article: “Financial gifts, IHT and the seven year rule".
Just to make it more interesting, Inheritance Tax (IHT) may be charged at 40% on any gifts you give away over the £3k allowance before you die. if made between three to seven years before your death, these non-allowance gifts made are taxed according to the Taper Relief sliding scale.
Make a note
As the Money Helper website says:
“If you're thinking about giving away money or assets to your family and friends to reduce Inheritance Tax, it's very important you make a record of:
- what you gave
- who you gave it to
- when you gave it
- how much it's worth
This will make it easier for the executor of your estate to work out during probate what parts of your estate are liable for tax.”
For more useful information on gifts and allowances, see their site.
Start the conversation
At Panthera Estate Planning, we offer expert succession and estate planning advice to help safeguard your hard-earned assets. Book your initial consultation with no-obligation.