With pension wealth being subject to inheritance tax for the first time from April 2027, now is the time to understand how giving financial gifts to loved ones can help one save taxes. As reported by The Independent, “Last tax year, IHT revenues hit a record high of £8.2bn, according to new HMRC figures.”
It was further mentioned that the pension tax is “expected to affect 153,000 estates between then and March 2029, according to OBR figures.” It also added, “This shift will push even modest earners into paying IHT for the first time. The tax-free nil-rate band stands at £325,000, so a family inheriting a house worth £300,000 and a pension pot of £150,000, could end up owing £50,000 inheritance tax.”
One of the best and easiest ways to save oneself from paying huge amounts of inheritance tax is giving financial gifts to people close to them. However, in that regard, Ian Dyall, head of estate planning at wealth manager Evelyn Partners, mentioned something that should always be kept in mind.
He said, “The overriding rule is, as long as you live for seven years you can give away as much as you want, as at that point any gift will be counted as having left the estate and will be exempt from IHT. But the important caveat here is that you cannot continue to benefit from the gift after having given it away. However, there are also certain exemptions which mean that the amounts gifted leave the estate immediately.”
Therefore, it is important to divide one’s gifts into smaller amounts that they can disperse regularly as it would ensure there remains no risk of an IHT bill even if the pensioner passes away within seven years of giving the gift. Every year, one can give £3,000 as a gift and that will not be counted as one’s estate’s part as the amount remains within the annual gift allowance limit.
The Independent mentions another rule regarding this, stating, “can give multiple small gifts of up to £250 each year to anyone, provided you haven’t used another allowance for the same person.” It further adds, “When a relative gets married, you can give extra gifts – £5,000 to your children, £2,500 to your grandchildren and £1,000 to anyone else.”
View this post on Instagram
Another way of saving inheritance tax is by gifting from one’s extra or surplus income. Regarding this, Ian Dyall says, “This must be treated with care as it is bound by tight rules and needs to be well recorded, but essentially means that you can give away regular amounts if they come out of excess income (and only income) that is not needed by you to maintain your standard of living.”
Besides following these techniques to save the maximum amount of inheritance tax, it is also important for individuals to make sure that they have a tax efficient will in place because that can also help in not paying unnecessary taxes.
