Inheritance Tax rules on gifts explained

• There are various different gift allowances that are exempt from Inheritance Tax. For anything above your individual allowance, the 7-year rule determines whether or how much IHT needs to be paid.
• If you’re thinking about how your estate will be managed, Provira’s Estate Advance could help your family avoid financial challenges during probate.
• Additionally, if you have beneficiaries dependent on your estate, Provira’s Inheritance Advance can give them access to their inheritance sooner.

In the UK, you can gift money to friends and family throughout your lifetime. Depending on how much you gift, who the recipient is and how long you live afterwards, these gifts can be entirely free of Inheritance Tax. 

If the value of your estate sits above the £325,000 tax-free threshold, planning ahead to make the most of the gift allowances is a smart way to reduce your IHT bill and ultimately make sure more of your estate is passed down to your loved ones. 

This can be particularly important if you have loved ones who are dependent on your estate for financial support.

If you’ve made the most of all of your gifting allowances but are still worried about your estate facing a high Inheritance Tax bill, it’s worth considering whether an Estate Advance could help cover the cost, and ease the pressure on your executor.

Through our Estate Advance, executors gain access to up to 50% of the net value of the estate within days to pay Inheritance Tax and other urgent estate expenses

Not only this but costs are kept extremely low as we only charge simple interest, not compound interest, we don’t charge early repayment fees, and we don’t require monthly repayments. We’re simply repaid in full once funds are released from the estate.

For more information, read about our Estate Advance here.

How much can you gift tax-free each year?

Each individual has an annual gifting allowance of £3,000 per tax year. This is a general allowance which is allocated per person, not per recipient.

This is only one form of gifting however. Other allowances sit on top of this and, if used correctly, mean a large portion of your estate can be passed down entirely tax-free.

Let’s run through all the possible gift allowances.

Annual exemption

As mentioned above, you are able to gift £3,000 per tax year without the gift forming part of your estate for Inheritance Tax purposes. If you don’t use your full £3,000 allowance, you can carry forward the remaining allowance for one tax year only. 

For example, if you gifted £2,000 in one tax year, you can gift £1,000 on top of your £3,000 allowance in the following tax year without facing any future Inheritance Tax liability. 

Small gifts exemption

This allowance enables up to £250 to be gifted to as many individuals as you want, per year. 

This allowance can’t be combined with the £3,000 annual exemption for the same person. 

In other words, if a gift is covered by your annual exemption, you can’t also claim the small gifts exemption for that same person during the same tax year.

Wedding or civil partnership gifts

Depending on the relation, there are different tax-free allowances available when a descendant gets married. These gifts must be given shortly before or on the wedding day and if the wedding doesn’t go ahead, the allowance no longer applies.

• Children can receive up to £5,000 tax-free
• Grandchildren or great-grandchildren can receive up to £2,500 tax-free
• Anyone else is able to receive up to £1,000 tax-free

Normal expenditure out of income

As long as your standard of living is not impacted, you can also gift from surplus income. This is commonly used for things like setting up a savings account for a grandchild or paying school fees. 

Making use of all of these gifts is reasonably straightforward and, as long as you plan your estate carefully, they could significantly reduce the amount of Inheritance Tax that will need to be paid on your estate.

What is the 7-year rule for gifts?

If you gift an asset of any value more than 7 years before your death, it will not be included in your estate for Inheritance Tax purposes. These are called Potentially Exempt Transfers (PETs). 

This is a great way of maximising how much of your estate can be passed on tax-free. 

If the death occurs within seven years, it becomes a part of the estate, and could be exposed to IHT if the total estate value sits above the £325,000 tax-free threshold.

The amount of Inheritance Tax due gradually decreases over the 6 years under what’s known as taper relief:

• After 3-4 years, 32% tax is charged
• After 4-5 years, 24% tax is charged
• After 5-6 years, 16% tax is charged
• After 6-7 years, 8% tax is charged.

As soon as a gift is made, the seven years begin, which is why it’s so important to start thinking about your estate planning as early as possible. 

This reduces the chance that families will need to face unexpected financial challenges when administering the estate, which can lead to either struggling to cover an Inheritance Tax bill, or delays to receiving inheritances.

Luckily Provira provides an answer to both.

For executors struggling to cover an Inheritance Tax bill, our Inheritance Tax loan offers a simple financial solution, providing access to up to 50% of the net value of the estate within days. Find out more here.

For beneficiaries facing a slow probate process who want to access their inheritance sooner, our Inheritance Advance gives you access to up to 50% of your inheritance almost immediately.

To start your application for either of our loans today, get in touch.

Do my children have to pay IHT on gifts?

Usually, no. The responsibility of paying Inheritance Tax falls to the executor on behalf of the deceased’s estate.

In more unusual cases, if the estate isn’t able to cover the full Inheritance Tax bill, HMRC may be able to pursue a gift recipient if their gift had tax owed on it. For example, if a gift was given within seven years of the date of death. 

If you have descendants who are financially dependent on your estate, they might benefit from knowing about our Inheritance Advance. Particularly as it’s offered on an individual basis, so they don’t have to rely on all beneficiaries opting to take a loan out. 

Navigating confusing legal processes and facing unnecessary financial pressure can prove to be overwhelming amongst grief. When you’re a beneficiary waiting on money that could make a real difference to your life, it can feel like you’re stuck.

Our loan provides beneficiaries with up to 50% of their inheritance, often within days, so they have instant access to money that could make a real difference.

For more information, explore our Inheritance Advance here.

How Provira can help 

Knowing the Inheritance Tax rules on gifts can significantly impact how much of an estate is able to be passed on to family, friends and other beneficiaries Inheritance Tax-free.

Even the best planned estates can be challenging for an executor to administer and leave beneficiaries in limbo. 

As probate can take up to a year to complete, often longer, executors can spend this time struggling to cover urgent costs like an Inheritance Tax bill or legal fees. 

At the same time, beneficiaries can find themselves waiting months, sometimes years for their inheritance to come through.

This is where Provira’s loans offer a simple step forward, no matter the scenario. 

For beneficiaries, our Inheritance Advance provides access to up to 50% of the inheritance in just a few days.

For executors, our Estate Advance gives you immediate access to up to 50% of the net value of the estate. 

With both of our loans you:

• Only pay simple interest, not compound interest, saving money in the long run
• Keep costs low with no early repayment fees if everything is wrapped up sooner than expected
• Can be as involved as you want, as we deal directly with solicitors and HMRC
• Won’t have to worry about monthly repayments, the loan is repaid in full directly from the estate once funds are released
• Receive a dedicated member of our compassionate team to guide you through the process from start to finish

To get started, fill out our form today. It takes just a few minutes.