2. Gifts and exemptions

Even if your estate is over the threshold you can sometimes pass on assets without paying Inheritance Tax.

Your spouse or civil partner

There’s usually no Inheritance Tax to pay on anything you leave to your spouse or civil partner who has their permanent home in the UK, even if it’s over the threshold. This includes any gifts you give while you’re alive.

Charities

Gifts you make to charities, museums, universities, Community Amateur Sports clubs and the National Trust are exempt - for more information, call the HM Revenue and Customs (HMRC) Charities Helpline:

Charities Helpline
Telephone: 0300 123 1073
Find out about call charges

Gifts: the 7-year rule

If you live for 7 years after making a gift to someone, it’s exempt from Inheritance Tax regardless of the value. This is called a ‘potentially exempt transfer’.

If you continue to benefit from something you’ve given away, it won’t be exempt from Inheritance Tax and is called a ‘gift with reservation of benefit’.

Example

If you give your house away but continue to live in it without paying the market rate of rent, it won’t be exempt from Inheritance Tax.

Annual exemption

You can give away up to £3,000 a year - you can also carry over unused allowance from the preceding year. These gifts will be exempt from Inheritance Tax when you die.

Small gift exemption

You can make small gifts of up to £250 to as many people as you like (but you can’t use this exemption with the £3,000 annual exemption for the same person).

Wedding and civil partnership gifts

These are exempt, with certain rules:

  • parents of the couple can give them cash or gifts worth up to £5,000
  • grandparents can each give up to £2,500
  • anyone else can give up to £1,000
  • you have to make the gift, or promise to make it, on or shortly before the date of the wedding or civil partnership ceremony

Business relief

If you own a business or share of a business you may be able to pass some of it on without paying tax. More information about business relief is on the HMRC website.

Agricultural relief

If you own a working farm, you can pass some of it on without paying tax. More information about agricultural relief is on the HMRC website.

Woodland relief

If you have woodland, the value of the timber (but not the land) is excluded from your estate. If the timber is sold, Inheritance Tax is then due.

The woodland might also qualify for agricultural relief or business relief if it’s part of a working farm or business.

Heritage relief

If you own something of historic or scientific interest, it could be exempt from Inheritance Tax. Examples include:

  • buildings of outstanding historic or architectural interest
  • objects with national scientific, historic or artistic interest

The assets have to be made available for the public to view - there’s a database of heritage assets on the HMRC website.

The rules on heritage relief are complicated - contact the Inheritance Tax Helpline for advice:

Probate and Inheritance Tax Helpline
Telephone: 0300 123 1072
Find out about call charges

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