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Martin Lewis provides advice on mortgages in later life
This is referred to as an annual exemption or an exempted gift, which can be carried forward to the following year if unused.
A gift is considered anything which has intrinsic value, including property and money, or something which has a loss of value after it has been transferred or sold.
Gifts are available to taxpayers as a form of relief to mitigate any Inheritance Tax liabilities.
Inheritance Tax is a tax on someone’s estate who has passed away, which includes their property, money or possessions.
Currently, the standard Inheritance Tax rate is at 40 percent and individuals are only charged on the part of the estate which is above the threshold of £325,000.
However, this threshold can increase to £500,000 if someone gives their home to their children or grandchildren.
An estate can pay a reduced rate of 36 percent on certain assets if 10 percent or more of its net value is left in a will.
Anyone who inherits an estate does not usually pay tax on anything they inherit.
No Inheritance Tax is paid on gifts between spouses and civil partners, provided they live in the UK.
Furthermore, taxpayers can also give away wedding or civil ceremony gifts of up to £1,000 as part of the exemption.
The amount for exempted wedding gifts can be extended to £2,500 for an individual’s grandchild or great-grandchild, or £5,000 for their child.
Everyday gifts, such as birthday or Christmas presents, are also eligible to be part of the exemption, however taxpayers must be able to maintain a certain standard of living after making the gift.
Donations to any charities or political parties come under the banner of an exempted gift.
Small gifts of up to £250 per person are also eligible for exemption throughout the tax year, as long as no other exemption has been used on the same person.
More than one of these exempted gifts can be given to the same person.
Any gifts made between three to seven years before someone’s death are taxed on a sliding scale, which is commonly known as ‘taper relief’.
Louise Higham, Director of Financial Planning at wealth management firm Tilney, recently discussed the benefits of financial gifting in her tips of how people can get more from their savings and support their loved ones at the same time.
Higham said: “If you’re married or living with your partner, have children, or older parents, it’s likely that you’ll be giving extra thought to your family’s future and what your financial situation currently is in terms of long-term support for them.
“Now might be a time to consider providing them with a financial helping hand. Everyone can make financial gifts of up to £3,000 per annum without adverse tax implications.”
In her list of tips, Higham emphasised the necessity for people to beware the rising cost of living, identify cost savings and scrap any unused subscriptions, but highlighted the importance of financial gifting in offering wider support to a family unit.
Specifically, the expert noted the benefit of financial gifting as means of mitigating any liability to Inheritance Tax.
She added: “Financial gifting in your lifetime means you can help family members when they are younger and perhaps in greater need – for example, to clear debts, buy their first home, raise a family or start a fledgling business – as well as reducing potential liability to Inheritance Tax on your assets when you die.”
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