Can I gift £3,000 for previous years without paying inheritance tax?
One of our experts answers a reader's question.
12th March 2019 10:01
by Ruth Jackson from interactive investor
Share on
Q
“You say that the personal £3,000 annual inheritance tax (IHT) exemption for gifts doubles if the previous year’s allowance has not been used. But how far back can this go? If I haven’t used this allowance for 15 years, can I dispose of £45,000 without attracting tax?”
From: CS/Italy
A
Every year, we can all gift up to £3,000 in cash or assets without attracting inheritance tax (IHT). This is known as your ‘gift allowance’. You can carry over any unused allowance from one tax year to the next up to a maximum of £6,000, so you cannot carry it over for 15 years.
Invest with ii: What is a SIPP? | Are SIPPs worth it?| SIPP Inheritance Tax
However, it is important to remember that there are other amounts you can give away each year which don’t count towards your ‘gift allowance’. These include wedding gifts and smaller sums. With the former, a parent can gift up to £5,000 to a child in the year they get married without it attracting IHT, a grandparent can gift up to £2,500, anyone else can gift a bride or groom up to £1,000 and it is IHT-free. We are all also allowed to give away as up to £250 to as many people as we like each year and it is IHT free.
Just be aware that someone who receives a smaller gift can’t also receive part of your £3,000 ‘gift allowance’.
You can also give money to help pay the living costs of an ex-spouse, elderly dependant or child in full-time education without it attracting IHT.
Finally, you can give money out of your surplus income – provided it won’t affect your usual standard of living and it is a regular gift such as an insurance premium, annual gift or paying school fees – and it is free from IHT. But there are a lot of rules around this particular exemption, so you may want to get professional advice before gifting from your surplus income.
If you do make any gifts, keep a detailed record of them.
IHT is a complicated beast so if you have a large estate and fear a hefty tax bill, it is well worth getting professional advice on how to manage your gifts and minimise any prospective IHT bill.
It is worth noting that only 3.8% of estates were liable for IHT in the 2017/18 tax year, according to the Office for Budget Responsibility. Far more of us worry about inheritance tax than are affected by it.
Ruth Jackson is a personal finance journalist
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.