🎁Lifetime Gifting

 Lifetime gifting is a powerful way to pass on wealth during your life while potentially reducing your estate’s exposure to Inheritance Tax (IHT) in the UK. Let’s break down how it works, the tax benefits, and what to watch out for.

💡 What Is Lifetime Gifting?

It’s when you give away money, property, or assets while you’re still alive. These gifts can:

  • Reduce the value of your estate (which may lower IHT).
  • Help loved ones when they need it most.
  • Allow you to see the impact of your generosity.

 

📉 Tax Benefits of Lifetime Gifts

  1. Annual Exemption

You can gift £3,000 per tax year without it counting toward your estate.

Unused allowance can roll over for one year.

  1. Small Gifts

Give up to £250 per person annually, tax-free, if no other exemption is used for that person.

  1. Wedding/Civil Partnership Gifts

Tax-free up to:

£5,000 for a child - £2,500 for a grandchild - £1,000 for anyone else

  1. Gifts from Income
  • Regular gifts from surplus income (not capital) are exempt if:
  • They don’t affect your standard of living.
  • They’re part of a consistent pattern.
  1. Charitable Gifts
  • Gifts to UK charities are completely tax-free.

⏳ The 7-Year Rule

Gifts are IHT-free if you survive 7 years after giving them.

If you die within 7 years, tax may apply based on a sliding scale (known as taper relief):

  • 0–3 years: 40% - 3–4 years: 32% - 4–5 years: 24% - 5–6 years: 16% -6–7 years: 8%

 7+ years: 0%

Gifts with Reservation of Benefit

If you still benefit from the gift (e.g. live in a house you’ve gifted), it may still count toward your estate for IHT.

Care Home Fees

Gifts made to avoid paying for care may be challenged by local authorities under deprivation of assets rules.

Record Keeping

Keep detailed records of:

What was gifted

When and to whom

Value at the time of gifting