The estate may not have to pay Inheritance Tax on assets the deceased gave away as gifts while they were alive.
A gift can be:
- anything that has a value, eg money, property, possessions
- a loss in value when something’s transferred, eg if a parent sells a house to a child for less than it’s worth, the difference in value counts as a gift
There’s no Inheritance Tax on any gift married couples or civil partners give each other - as long as they live in the UK permanently.
The original owner must live for 7 years after giving the gift. If they don’t their estate or the person who received it will have to pay Inheritance Tax on it.
The amount due is reduced on a sliding scale if the gift was given away between 3 and 7 years before the person died.
When the person who received the gift pays Inheritance Tax
Anyone who received a gift from the deceased in the 7 years before they died may have to pay Inheritance Tax if the deceased gave away gifts worth more than £325,000 in that time.
HM Revenue and Customs (HMRC) will tell the person that received the gift if they have to pay Inheritance Tax.
Gifts you don’t pay Inheritance Tax on
The estate doesn’t pay Inheritance Tax on up to £3,000 worth of gifts given away by the deceased in each tax year (6 April to 5 April). This is called the ‘annual exemption’.
Leftover annual exemption can be carried over from each tax year to the next, but the maximum exemption is £6,000.
Certain gifts don’t count towards the annual exemption and no Inheritance Tax is due on them, eg wedding gifts and individual gifts worth up to £250.
There’s no Inheritance Tax on a gift that was a wedding or civil partnership gift worth up to:
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to anyone else
The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.
Gifts up to £250
There’s no Inheritance Tax on individual gifts worth up to £250 - unless in the same tax year the deceased gave the same person:
- more than £250 worth of gifts
- other gifts that are free from Inheritance Tax, eg a wedding gift or a gift that counts towards their £3,000 annual exemption
Regular gifts from the giver’s income
There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. The gifts include:
- Christmas, birthday and wedding or civil partnership anniversary presents
- life insurance policy premiums
- regular payments into a savings account
Payments to help with living costs
There’s no Inheritance Tax on gifts to help with other people’s living costs. These include payments to:
- an ex-husband, ex-wife or former civil partner
- a relative who’s dependent on them because of old age, illness or disability
- a child (including adopted and step-child) under 18 years old or in full-time education
There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.
There’s no Inheritance Tax on gifts to political parties that have either:
- 2 members elected to the House of Commons
- 1 member elected to the House of Commons and received at least 150,000 votes in a general election