Lifetime Giving

In England and Wales, you can give as much as you like to your loved ones but the value of some gifts might be taxed as part of your estate when you die. On this page, you’ll learn the rules around lifetime gifting, including tax-free exclusions and why the timing of the gift is everything.

Summary:

  • If the gift is not exempt and you die within seven years of making the gift, it may become chargeable to inheritance tax (IHT).
  • Gifts of any value between spouses and civil partners are generally not taxable.
  • You can give away a total of £3,000 gifts each year without worrying about IHT.
  • If you survive any outright gift by seven years then no IHT would fall due.

What is a lifetime gift?

A lifetime gift is any gift that you make, without strings, during your lifetime. In the UK, there are strict rules around gifting to stop people from avoiding IHT by giving away their possessions as gifts before they die.

What counts as a gift?

A gift can be anything that has value, such as money, property, shares, business assets, jewellery, antiques and artwork. It also includes the reduction in value when you sell something for less than it is worth. For example, if a mother sells her house to her daughter for £400,000 when the market value is £500,000, this amounts to a gift of £100,000.

Why do people make lifetime gifts?

People make lifetime gifts for many reasons. These include philanthropy, and giving loved ones help when they need it most. Gifting can also be a tax-efficient way to reduce your IHT liability when you die. That’s because gifts are usually excluded from your estate if the gift is given less than 7 years before you die (more on this below).

The standard rate of IHT is 40% for estates worth over £325,000 (the nil-rate band). There’s an additional residence nil-rate band of £175,000 that can be passed on tax-free against the value of the family home if the prescribed criteria are fulfilled.

Are all gifts taxable?

Not all gifts are taxable. You can gift as much as you like to a spouse or civil partner during your lifetime and not pay IHT, as long as they are permanent UK residents.

Gifts you make to registered UK charities, political parties and some national organisations like museums and the National Trust are also exempt from IHT.

Lifetime gifts made to anyone else – including children, relatives and friends – will only escape IHT fully if:

  • The gift qualifies for an exemption; or
  • The donor survives for the next seven years.

What are IHT exemptions?

The amount of lifetime gifts to be added to the estate after death can be reduced by making use of various IHT exemptions:

  • Annual exemption – a total of £3,000 can be given away each tax year without the value of these gifts being added to your estate. Your annual exemption can be rolled over to the next year if you don’t use it, but only for one tax year.
  • Small gift exemption – gifts of up to £250 a person can be made to as many people as you like, as long as no other gifts were made to these recipients.
  • Wedding and civil partnership gifts – you can also give tax-free cash gifts for weddings or civil partnerships ranging from £1,000 to £5,000 depending on your relationship with the recipient.
  • Normal expenditure out of income – regular everyday gifts made from your surplus, taxed income are wholly exempt from IHT as long as you can maintain your current standard of living after making the gift. Things like paying for grandchildren’s school fees or helping your student child with their rent would fall into this category.

 

Does it matter when you make the gift?

The timing of the gift is critical. Outright lifetime gifts of any value are Potentially Exempt Transfers (PETs), which means they drop out of your estate and are exempt from IHT if you live for seven years after making the gift.

If you die within seven years of the gift, IHT will be payable – but it may not be payable at the full amount. Taper relief reduces the IHT due on the gift on a sliding scale. The table below shows how much you need to pay.

The rules are more complex for gifts into a trust, which may require the donor to survive the transfer for a longer period.

Years between gift and death Rate of tax on the gift
Under 3 40%
3-4 32%
4-5 24%
5-6 16%
6-7 8%
7 or more 0%

Bear in mind that if you give away an asset but still benefit from it, it will not be a PET and it will count towards the value of your estate. For example, you cannot give away your home and continue to live there.

The value of ‘gifts with reservation of benefit,’ as they are known, will need to be reported to HMRC. This needs to reflect how much the gift was worth on the day the donor died.

Will lifetime gifting trigger other tax liabilities?

There are a number of other taxes that you have to consider when gifting property and possessions besides IHT. The main consideration which often puts people off making large lifetime gifts is the capital gains tax (CGT) payable on the transfer. The amount of gain is calculated on the basis that the open market value has been received for the gift.

Rates vary depending on the type of asset but a higher or additional rate taxpayer could pay 28% on ‘gains’ from the transfer. Special rules apply to business assets and gifting shares in your own trading company may qualify for CGT relief on the transfer.

Where you don’t survive the gift by at least seven years, it’s possible to end up paying both IHT and CGT on the gift.

For gifts of property, you will also need to consider whether a Stamp Duty Land Tax charge arises. This is payable by the recipient of the gift at the time of the transfer.

Read more

Lifetime Giving FAQs

We have prepared a detailed FAQ sheet that covers the most frequently asked questions around Lifetime Giving.

Making gifts during your lifetime is an efficient way to reduce the value of your estate for inheritance tax purposes as well as providing benefits for your family. Managing the succession of personal and family assets is often at the forefront for many individuals’ minds and thus lifetime giving is very much the cornerstone of any successful tax and estate plan.

View FAQs

Lifetime Gifts Handbook

We have prepared a handbook to answer the most pressing and common lifetime giving questions and issues including; giving property to the next generation, gifts to vulnerable individuals, how best to fulfil an individual’s philanthropic ambitions, foreign gifts and the tax benefits associated with gifts of art.

At Collyer Bristow LLP, we can help you navigate the intricacies of lifetime giving, mitigate any potential downsides and optimise the benefits for you and your loved ones.

Download the handbook
Lifetime Gifts

Lifetime Gifts

Lifetime Giving

In England and Wales, you can give as much as you like to your loved ones but the value of some gifts might be taxed as part of your estate when you die. On this page, you’ll learn the rules around lifetime gifting, including tax-free exclusions and why the timing of the gift is everything.

Summary:

  • If the gift is not exempt and you die within seven years of making the gift, it may become chargeable to inheritance tax (IHT).
  • Gifts of any value between spouses and civil partners are generally not taxable.
  • You can give away a total of £3,000 gifts each year without worrying about IHT.
  • If you survive any outright gift by seven years then no IHT would fall due.

What is a lifetime gift?

A lifetime gift is any gift that you make, without strings, during your lifetime. In the UK, there are strict rules around gifting to stop people from avoiding IHT by giving away their possessions as gifts before they die.

What counts as a gift?

A gift can be anything that has value, such as money, property, shares, business assets, jewellery, antiques and artwork. It also includes the reduction in value when you sell something for less than it is worth. For example, if a mother sells her house to her daughter for £400,000 when the market value is £500,000, this amounts to a gift of £100,000.

Why do people make lifetime gifts?

People make lifetime gifts for many reasons. These include philanthropy, and giving loved ones help when they need it most. Gifting can also be a tax-efficient way to reduce your IHT liability when you die. That’s because gifts are usually excluded from your estate if the gift is given less than 7 years before you die (more on this below).

The standard rate of IHT is 40% for estates worth over £325,000 (the nil-rate band). There’s an additional residence nil-rate band of £175,000 that can be passed on tax-free against the value of the family home if the prescribed criteria are fulfilled.

Are all gifts taxable?

Not all gifts are taxable. You can gift as much as you like to a spouse or civil partner during your lifetime and not pay IHT, as long as they are permanent UK residents.

Gifts you make to registered UK charities, political parties and some national organisations like museums and the National Trust are also exempt from IHT.

Lifetime gifts made to anyone else – including children, relatives and friends – will only escape IHT fully if:

  • The gift qualifies for an exemption; or
  • The donor survives for the next seven years.

What are IHT exemptions?

The amount of lifetime gifts to be added to the estate after death can be reduced by making use of various IHT exemptions:

  • Annual exemption – a total of £3,000 can be given away each tax year without the value of these gifts being added to your estate. Your annual exemption can be rolled over to the next year if you don’t use it, but only for one tax year.
  • Small gift exemption – gifts of up to £250 a person can be made to as many people as you like, as long as no other gifts were made to these recipients.
  • Wedding and civil partnership gifts – you can also give tax-free cash gifts for weddings or civil partnerships ranging from £1,000 to £5,000 depending on your relationship with the recipient.
  • Normal expenditure out of income – regular everyday gifts made from your surplus, taxed income are wholly exempt from IHT as long as you can maintain your current standard of living after making the gift. Things like paying for grandchildren’s school fees or helping your student child with their rent would fall into this category.

 

Does it matter when you make the gift?

The timing of the gift is critical. Outright lifetime gifts of any value are Potentially Exempt Transfers (PETs), which means they drop out of your estate and are exempt from IHT if you live for seven years after making the gift.

If you die within seven years of the gift, IHT will be payable – but it may not be payable at the full amount. Taper relief reduces the IHT due on the gift on a sliding scale. The table below shows how much you need to pay.

The rules are more complex for gifts into a trust, which may require the donor to survive the transfer for a longer period.

Years between gift and death Rate of tax on the gift
Under 3 40%
3-4 32%
4-5 24%
5-6 16%
6-7 8%
7 or more 0%

Bear in mind that if you give away an asset but still benefit from it, it will not be a PET and it will count towards the value of your estate. For example, you cannot give away your home and continue to live there.

The value of ‘gifts with reservation of benefit,’ as they are known, will need to be reported to HMRC. This needs to reflect how much the gift was worth on the day the donor died.

Will lifetime gifting trigger other tax liabilities?

There are a number of other taxes that you have to consider when gifting property and possessions besides IHT. The main consideration which often puts people off making large lifetime gifts is the capital gains tax (CGT) payable on the transfer. The amount of gain is calculated on the basis that the open market value has been received for the gift.

Rates vary depending on the type of asset but a higher or additional rate taxpayer could pay 28% on ‘gains’ from the transfer. Special rules apply to business assets and gifting shares in your own trading company may qualify for CGT relief on the transfer.

Where you don’t survive the gift by at least seven years, it’s possible to end up paying both IHT and CGT on the gift.

For gifts of property, you will also need to consider whether a Stamp Duty Land Tax charge arises. This is payable by the recipient of the gift at the time of the transfer.

Key Contacts

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    Message us on WhatsApp

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up
    ExpandNeed some help?Toggle

    < Back to menu

    Contact us

    Need some help?

    Get in touch

    Get in touch using our form below.