What is a gift and how does it impact Inheritance Tax?
A gift is anything that has value, such as money, household and personal goods, property, stocks and shares listed on a Stock Exchange, and unlisted shares held for less than two years before death. A gift can also include any money lost when something is sold for less than its worth. For example, if you sell your house to your child for less than its market value, the difference in value counts as a gift.
Inheritance Tax may have to be paid after death on gifts if the person who has died has not lived for seven years after the gift was made. Gifts do not count towards the value of the estate after seven years and will not be subject to IHT. Gifts made less than seven years before death may be taxed depending on:
- Who the gift is for and their relationship to the Deceased
- The value of the gift
- When the gift was given
Any Inheritance Tax due on gifts (after the NRB has been exhausted) is paid by the person receiving the gift. There is a taper that can be applied to gifts that are closer to reaching the seven-year period. The taper (which takes place over the last four years) means the tax would not be paid at 40% but at a lower rate, depending on how close to the end of the seven-year period the gift is made.
There is no Inheritance Tax to pay on gifts between spouses/civil partners. They can receive any amount during their lifetime as long as they live in the UK permanently and are legally married or in a civil partnership.
Article by The Kings Court Trust
10 November 2021
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