INHERITANCE TAX: Specific Life Exemptions

It’s an odd thing inheritance tax – it feels like bad luck to talk abut it, as if by discussing death we are somehow hastening the reality.  It is an enormous field with tax specialists offering advice particularly to those with valuable assets and savings.  In the past inheritance tax is not something many people had to worry about but with increased house values (especially if you live in an expensive part of the country) more people will be affected in the future.

Most people are aware of the 7 year rule, i.e. anything you give away during the 7 years before your death can be brought back into your estate and taxed.  However, there are some specific lifetime exemptions that are worth knowing about:

Annual exemption
A person’s lifetime gifts are exempt up to a total of £3,000 in an income tax year – 6 April to 5 April the following year.

And any part of the annual exemption which is not used in the tax year is carried forward to the next tax year and can be used in that year only.

Small gifts exemption
Lifetime gifts not exceeding £250 in total value made by one individual to another in any one tax year are exempt – applied separately to each recipient. It does not matter how many different recipoents there are, provided each recipient is given no more than £250 in the same tax year.

If the gifts to any one recipient in the same tax year exceed £250, the exemption is completely lost in relation to that recipient.

Normal expenditure out of income
This exemption applies where the taxpayer can show that a gift meets all 3 of the following conditions:
1. It formed part of the giver’s normal expenditure,
2. It was made out of income (not capital), and
3. It left the giver with enough income for them to maintain their normal standard of living.

If you would like more information on inheritance tax (or any tax!), please get in touch via our Contact Us page

About the Author
Carolyn Burchell trained with the UK’s top firm of accountants, qualifying as a Chartered Accountant in 1996. Carolyn moved into industry in 1997 working on a number of commercial projects and managing Treasury and Credit functions before taking a career break to have a family. In 2009, Carolyn decided to enter into the stringent Chartered Institute of Taxation examination programme, qualifying as a Chartered Tax Adviser in 2012.

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