Dear Ask an Expert,
Is it possible to give more than the £3,000 annual allowance and still not be subject to inheritance tax?
– VS, by e-mail
Most people know that you can give away £3,000 per tax year and it won’t be included in the value of your estate when you die. However, it is possible to give more than that without increasing your IHT bill.
First, you can give £6,000 in a tax year by advancing your annual allowance, assuming you haven’t used it the previous year. You can only do this for one tax year.
The annual allowance also applies to each spouse, so a couple’s combined allowance is £6,000 for one year.
In addition to the annual allowance, you can give wedding or civil partnership gifts to someone who is getting married that year. This can be up to £5,000 if you donate to a child, £2,500 to a grandchild or great-grandchild, £2,500 from one part of the marriage to another and £1,000 to any other person. It is acceptable to combine this with your £3,000 annual allowance. For example, you could gift your child who was getting married £8,000 that year without incurring IHT liability.
Another exemption is the Small Gift Allowance, which you can use to gift up to £250 per person each year. You can offer it to as many people as you like, but not to anyone who has already benefited from your annual £3,000 exemption.
However, these are not the only options. One of the most valuable ways to avoid an IHT bill is to give “non-income” gifts.
As long as the payments are made from your annual income and do not reduce your standard of living, then you can make donations to help the other person with their living expenses. There is no limit to the amount, but there must be a pattern for the donation – a one-time payment is unlikely to qualify.