IHT & Small Gifts
The small gift exemption to inheritance tax.
As it’s Christmas, I’ll tell you of a late aunt of mine. Those up to the minute with popular culture would recognise the name Ashley Banjo. This is name dropping. Such nameless shame dropping. I mean shameless name dropping. Ashley Banjo’s paternal grandmother was my mother’s sister.
The Small Gift Exemption
She didn’t know it at the time, but my aunt would have been practicing inheritance tax planning. Simple as does it. Every Christmas, she gave each of her nieces and nephews a £10 note. (in today’s money, that’d be about £430). Tell me, what child, then or now did not appreciate the gift of cash. The small gifts rule did not exist then – inheritance tax did not exist then. There’ve been death duties for ages, but inheritance tax was introduced after I left school.
Small gift exemption: You may make any number of gifts to different people, up to £250 each. Keep records. If you don’t keep records, you’ll get in no end of trouble.
It’s a Gift Tax
By whatever name we call it, honey would still be sweet. When it is payable, inheritance tax is a misnomer. To call it by its name, the tax is not triggered by death, rather, the levy might be due when a gift is made. True, most gifts that could trigger the tax arise on death of the donor. If you made a gift it, it would potentially be subject to this tax. We’ll talk about potentially exempt transfers another time. If you made a gift to a trust in your lifetime an inheritance tax charge of 20% would be made on day one.
Remember, it’s a small gift exemption, not a Christmas present exemption, so you may use it at any time of the year.
What to read next: Intestacy, the PerilsTags: Inheritance Tax Planning