Planning ahead: Gifts free of inheritance tax
There is no space on the 2011 tax return for inheritance tax. This is because it is largely a tax on what you leave when you die (including gifts made in the seven years before). The number of estates which are taxed is expected to be around one in 25 by 2014-15.
The tax rate is a hefty 40 per cent of anything over £325,000 in 2011-12. There is plenty that can be done to reduce the amount paid - as long as you plan carefully.
The following is a list of gifts free from inheritance tax.
Gifts that are always tax-free:
* gifts between husband and wife or civil partners - even if the two are legally separated. But only the first £55,000 is tax-free if the gifts are to someone who is not domiciled in the UK
* gifts to UK charities and community amateur sports clubs
* gifts to certain national institutions such as the National Trust, National Gallery, British Museum (and their British Isles equivalents)
* gifts of certain types of heritage property such as paintings, archives, land or historic buildings to non-profit-making concerns like local museums
* gifts of land in the UK to registered housing associations
* gifts of shares in a company into a trust for the benefit of most or all of the employees which will control the company
* gifts to established political parties.
Gifts that are tax-free on death only:
* lump sums paid out on your death by a pension scheme provided the trustees of the scheme have discretion about who gets the money
* refunds of personal pension contributions (and interest) paid directly to someone else or a trust - in other words, not paid into your estate
* the estate of anyone killed on active military service in a war or whose death was hastened by such service
* £10,000 ex gratia payments received by survivors (and their spouses) held as Japanese prisoners of war during World War Two and amounts from other specified schemes that also provide compensation for wrongs suffered during the war.
Gifts that are tax-free in lifetime only:
* anything given to an individual more than seven years before your death
* small gifts worth up to £250 to any number of people in any tax year. But you can't give anyone more than this limit and claim exemption on the first £250 - if you give someone £500, the whole £500 will be taxable unless it is tax-free for one of the other reasons below
* regular gifts that are treated as normal expenditure out of income. The gifts must come out of your after-tax income and not from your capital. After paying of the gifts, you should have enough income to maintain your normal standard of living
* gifts on marriage to a bride or groom or on registration to civil partners: each parent of the bride, groom or partner can give £5,000, grandparent or remoter relatives and the bride, groom or partners themselves can give £2,500 and anyone else £1,000. The gifts must be made before the big day - and if the marriage or registration is called off, the gift becomes taxable
* gifts for the maintenance of your family - your current or a former husband, wife or civil partner, certain dependent relatives and children under 18 or still in full-time education. The chidden can be yours, step children, adopted children or any other children in your care
* up to £3,000 in total a year on other gifts. If you don't use the whole £3,000 annual exemption in one year, you can carry forward the unused part to the next year only. You cant use the annual exemption to top up the small gifts exemption. If you give someone more than £250 in a year, all of it must come off the annual exemption if it is to be free of inheritance tax.
