The Annual Allowance

With the end of the current tax year fast approaching, anyone wishing to use their 2023/24 (and potentially their 2022/2023) annual allowance in relation to gifts only has a limited time to do so.

Each tax year you can give away up to a total of £3,000, with no impact on your estate for inheritance tax purposes. If you have not used the previous year’s allowance this can also be ‘rolled forward’ and utilised. This means your estate could benefit from gifting up to £6,000 tax free before 5 April 2024.

The current tax year’s exemption is used first before bringing forward the previous year’s unused allowance. As such, if you failed to use your 2022/23 allowance in that tax year it will be completely lost from 6 April 2024.

Gifts over £3,000

You can make larger gifts of more than the annual allowance if desired. Providing you survive making the gift by seven years and do not retain any benefit from it, the value of the gift will fall outside of your estate for Inheritance Tax purposes.  This could reduce the inheritance tax payable on your estate when you die, depending on the size of your estate.

It is beneficial to document and record any gifts made and for this to be stored with your Will or with your key investment information. By careful record keeping during your lifetime, your Executors will be able to easily collate the information needed at the time of your death.

If you don’t survive making larger gifts by seven years, your nil rate band will be reduced by the value of the gift (less available exemptions).  The nil rate band is the amount available before inheritance tax is payable on your estate.  It is currently £325,000 and the standard rate of IHT is 40%. The nil rate band has been £325,000 since 2009 and has been frozen as such until 2028.

Small gifts and marriage gifts

You can make small gifts of up to £250 to as many people as you wish in each tax year if you have not used your annual allowance on the same person.

You are also able to make gifts in consideration of marriage (of up to £5,000 for a child, £2,500 for a grandchild and £1,000 for any other person).

Small gifts and marriage gifts can be made without inheritance tax implications for your estate.

Other allowances and exemptions

Other allowances and exemptions may also apply depending on the assets in your estate and the beneficiaries named under your Will.

If you would like to discuss lifetime gifting, inheritance tax, estate planning, or would like a review of your Will our Wills, Trusts and Probate team would be happy to assist.

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